Does Park & Bellheimer (FRA:PKB) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Park & Bellheimer AG (FRA:PKB) makes use of debt. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Park & Bellheimer's Debt?

As you can see below, Park & Bellheimer had €5.19m of debt at June 2025, down from €7.79m a year prior. But it also has €10.3m in cash to offset that, meaning it has €5.10m net cash.

A Look At Park & Bellheimer's Liabilities

According to the last reported balance sheet, Park & Bellheimer had liabilities of €15.7m due within 12 months, and liabilities of €7.49m due beyond 12 months. Offsetting these obligations, it had cash of €10.3m as well as receivables valued at €4.70m due within 12 months. So it has liabilities totalling €8.22m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of €12.3m, so it does suggest shareholders should keep an eye on Park & Bellheimer's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Park & Bellheimer also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Park & Bellheimer

In fact Park & Bellheimer's saving grace is its low debt levels, because its EBIT has tanked 47% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is Park & Bellheimer's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Park & Bellheimer 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. Happily for any shareholders, Park & Bellheimer actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although Park & Bellheimer's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €5.10m. And it impressed us with free cash flow of €1.7m, being 161% of its EBIT. So we are not troubled with Park & Bellheimer's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example Park & Bellheimer has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.