Is LEG Immobilien (ETR:LEG) Using Too Much Debt?

Explore LEG Immobilien's Fair Values from the Community and select yours

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that LEG Immobilien SE (ETR:LEG) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is LEG Immobilien's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 LEG Immobilien had debt of €9.89b, up from €9.22b in one year. However, it also had €633.6m in cash, and so its net debt is €9.26b.

How Strong Is LEG Immobilien's Balance Sheet?

The latest balance sheet data shows that LEG Immobilien had liabilities of €3.38b due within a year, and liabilities of €9.52b falling due after that. On the other hand, it had cash of €633.6m and €364.4m worth of receivables due within a year. So its liabilities total €11.9b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the €5.44b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, LEG Immobilien would probably need a major re-capitalization if its creditors were to demand repayment.

See our latest analysis for LEG Immobilien

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

LEG Immobilien has a rather high debt to EBITDA ratio of 12.5 which suggests a meaningful debt load. However, its interest coverage of 3.9 is reasonably strong, which is a good sign. On the other hand, LEG Immobilien grew its EBIT by 28% in the last year. If sustained, this growth should make that debt evaporate like a scarce drinking water during an unnaturally hot summer. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine LEG Immobilien's ability to maintain a healthy balance sheet going forward. 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. So we always check how much of that EBIT is translated into free cash flow. During the last three years, LEG Immobilien produced sturdy free cash flow equating to 71% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

While LEG Immobilien's net debt to EBITDA makes us cautious about it, its track record of staying on top of its total liabilities is no better. But on the brighter side of life, its EBIT growth rate leaves us feeling more frolicsome. When we consider all the factors discussed, it seems to us that LEG Immobilien is taking some risks with its use of debt. While that debt can boost returns, we think the company has enough leverage now. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for LEG Immobilien (of which 1 is a bit unpleasant!) you should know about.

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.