Is SCHOTT Pharma KGaA (ETR:1SXP) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies SCHOTT Pharma AG & Co. KGaA (ETR:1SXP) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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 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. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is SCHOTT Pharma KGaA's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 SCHOTT Pharma KGaA had debt of €207.8m, up from €188.4m in one year. However, because it has a cash reserve of €28.3m, its net debt is less, at about €179.5m.

How Strong Is SCHOTT Pharma KGaA's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SCHOTT Pharma KGaA had liabilities of €412.8m due within 12 months and liabilities of €250.4m due beyond that. Offsetting this, it had €28.3m in cash and €418.1m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €216.8m.

Of course, SCHOTT Pharma KGaA has a market capitalization of €2.92b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.

See our latest analysis for SCHOTT Pharma 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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

SCHOTT Pharma KGaA has a low net debt to EBITDA ratio of only 0.67. And its EBIT covers its interest expense a whopping 18.7 times over. So we're pretty relaxed about its super-conservative use of debt. And we also note warmly that SCHOTT Pharma KGaA grew its EBIT by 13% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine SCHOTT Pharma KGaA'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Looking at the most recent three years, SCHOTT Pharma 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

Happily, SCHOTT Pharma KGaA's impressive interest cover implies it has the upper hand on its debt. But truth be told we feel its conversion of EBIT to free cash flow does undermine this impression a bit. When we consider the range of factors above, it looks like SCHOTT Pharma KGaA is pretty sensible with its use of debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. Over time, share prices tend to follow earnings per share, so if you're interested in SCHOTT Pharma KGaA, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.