RHÖN-KLINIKUM (ETR:RHK) Seems To Use Debt Rather Sparingly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that RHÖN-KLINIKUM Aktiengesellschaft (ETR:RHK) does use debt in its business. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is RHÖN-KLINIKUM's Net Debt?

As you can see below, RHÖN-KLINIKUM had €144.3m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have €346.2m in cash offsetting this, leading to net cash of €201.9m.

How Healthy Is RHÖN-KLINIKUM's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that RHÖN-KLINIKUM had liabilities of €409.5m due within 12 months and liabilities of €126.3m due beyond that. On the other hand, it had cash of €346.2m and €513.1m worth of receivables due within a year. So it can boast €323.5m more liquid assets than total liabilities.

This excess liquidity is a great indication that RHÖN-KLINIKUM's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, RHÖN-KLINIKUM boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for RHÖN-KLINIKUM

Fortunately, RHÖN-KLINIKUM grew its EBIT by 2.1% in the last year, making that debt load look even more manageable. 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 RHÖN-KLINIKUM 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. RHÖN-KLINIKUM may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, RHÖN-KLINIKUM's free cash flow amounted to 42% of its EBIT, less 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 RHÖN-KLINIKUM has net cash of €201.9m, as well as more liquid assets than liabilities. And it also grew its EBIT by 2.1% over the last year. So we don't think RHÖN-KLINIKUM's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in RHÖN-KLINIKUM, you may well want to click here to check an interactive graph of its earnings per share history.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.