These 4 Measures Indicate That Friedrich Vorwerk Group (ETR:VH2) Is Using Debt Safely

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Friedrich Vorwerk Group SE (ETR:VH2) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Friedrich Vorwerk Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Friedrich Vorwerk Group had €25.9m of debt in September 2025, down from €29.0m, one year before. But on the other hand it also has €123.9m in cash, leading to a €98.0m net cash position.

A Look At Friedrich Vorwerk Group's Liabilities

We can see from the most recent balance sheet that Friedrich Vorwerk Group had liabilities of €124.5m falling due within a year, and liabilities of €86.1m due beyond that. On the other hand, it had cash of €123.9m and €131.1m worth of receivables due within a year. So it can boast €44.4m more liquid assets than total liabilities.

This surplus suggests that Friedrich Vorwerk Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Friedrich Vorwerk Group boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Friedrich Vorwerk Group

Better yet, Friedrich Vorwerk Group grew its EBIT by 265% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Friedrich Vorwerk Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Friedrich Vorwerk Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last two years, Friedrich Vorwerk Group actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Friedrich Vorwerk Group has net cash of €98.0m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of €92m, being 106% of its EBIT. So we don't think Friedrich Vorwerk Group's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Friedrich Vorwerk Group that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.