Schwälbchen Molkerei Jakob Berz (FRA:SMB) Seems To Use Debt Quite Sensibly

Warren Buffett famously said, '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 Schwälbchen Molkerei Jakob Berz AG (FRA:SMB) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Schwälbchen Molkerei Jakob Berz's Net Debt?

As you can see below, Schwälbchen Molkerei Jakob Berz had €6.95m of debt at June 2025, down from €7.33m a year prior. However, it does have €20.6m in cash offsetting this, leading to net cash of €13.7m.

A Look At Schwälbchen Molkerei Jakob Berz's Liabilities

The latest balance sheet data shows that Schwälbchen Molkerei Jakob Berz had liabilities of €21.0m due within a year, and liabilities of €17.2m falling due after that. On the other hand, it had cash of €20.6m and €18.2m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Schwälbchen Molkerei Jakob Berz's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €58.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Schwälbchen Molkerei Jakob Berz boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Schwälbchen Molkerei Jakob Berz

The modesty of its debt load may become crucial for Schwälbchen Molkerei Jakob Berz if management cannot prevent a repeat of the 46% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Schwälbchen Molkerei Jakob Berz's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Schwälbchen Molkerei Jakob Berz 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. Looking at the most recent three years, Schwälbchen Molkerei Jakob Berz recorded free cash flow of 48% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Schwälbchen Molkerei Jakob Berz has net cash of €13.7m, as well as more liquid assets than liabilities. So we are not troubled with Schwälbchen Molkerei Jakob Berz's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Schwälbchen Molkerei Jakob Berz 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.