Beiersdorf (ETR:BEI) Has A Pretty Healthy Balance Sheet

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 can see that Beiersdorf Aktiengesellschaft (ETR:BEI) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Beiersdorf

What Is Beiersdorf's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Beiersdorf had €30.0m of debt, an increase on €20.0m, over one year. But it also has €2.50b in cash to offset that, meaning it has €2.47b net cash.

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A Look At Beiersdorf's Liabilities

The latest balance sheet data shows that Beiersdorf had liabilities of €3.70b due within a year, and liabilities of €820.0m falling due after that. On the other hand, it had cash of €2.50b and €2.04b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

Having regard to Beiersdorf's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the €29.4b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Beiersdorf boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that Beiersdorf grew its EBIT at 15% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Beiersdorf's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Beiersdorf 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, Beiersdorf recorded free cash flow of 39% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Beiersdorf has net cash of €2.47b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 15% in the last twelve months. So is Beiersdorf's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Beiersdorf, you may well want to click here to check an interactive graph of its earnings per share history.

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.