KWS SAAT SE KGaA (ETR:KWS) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies KWS SAAT SE & Co. KGaA (ETR:KWS) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is KWS SAAT SE KGaA's Debt?

As you can see below, KWS SAAT SE KGaA had €454.9m of debt at March 2025, down from €815.4m a year prior. However, it does have €312.9m in cash offsetting this, leading to net debt of about €142.0m.

How Strong Is KWS SAAT SE KGaA's Balance Sheet?

According to the last reported balance sheet, KWS SAAT SE KGaA had liabilities of €658.2m due within 12 months, and liabilities of €579.1m due beyond 12 months. Offsetting these obligations, it had cash of €312.9m as well as receivables valued at €891.0m due within 12 months. So it has liabilities totalling €33.4m more than its cash and near-term receivables, combined.

Having regard to KWS SAAT SE KGaA's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the €2.11b company is short on cash, but still worth keeping an eye on the balance sheet.

Check out our latest analysis for KWS SAAT SE KGaA

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

KWS SAAT SE KGaA's net debt is only 0.41 times its EBITDA. And its EBIT covers its interest expense a whopping 32.9 times over. So you could argue it is no more threatened by its debt than an elephant is by a mouse. In fact KWS SAAT SE KGaA's saving grace is its low debt levels, because its EBIT has tanked 28% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if KWS SAAT SE KGaA 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. Looking at the most recent three years, KWS SAAT SE KGaA recorded free cash flow of 27% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

Based on what we've seen KWS SAAT SE KGaA is not finding it easy, given its EBIT growth rate, but the other factors we considered give us cause to be optimistic. In particular, we are dazzled with its interest cover. Looking at all this data makes us feel a little cautious about KWS SAAT SE KGaA's debt levels. While we appreciate debt can enhance returns on equity, we'd suggest that shareholders keep close watch on its debt levels, lest they increase. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of KWS SAAT SE KGaA's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.