We Think Zalando (ETR:ZAL) Can Manage Its Debt With Ease

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Zalando SE (ETR:ZAL) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Zalando's Debt?

As you can see below, Zalando had €869.2m of debt at March 2025, down from €945.1m a year prior. However, it does have €2.48b in cash offsetting this, leading to net cash of €1.62b.

A Look At Zalando's Liabilities

The latest balance sheet data shows that Zalando had liabilities of €4.12b due within a year, and liabilities of €1.30b falling due after that. Offsetting this, it had €2.48b in cash and €933.4m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €2.00b.

While this might seem like a lot, it is not so bad since Zalando has a market capitalization of €7.48b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Zalando also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Zalando

In addition to that, we're happy to report that Zalando has boosted its EBIT by 65%, thus reducing the spectre of future debt repayments. 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 Zalando'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. While Zalando 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. Happily for any shareholders, Zalando actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Zalando's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €1.62b. The cherry on top was that in converted 203% of that EBIT to free cash flow, bringing in €432m. So is Zalando'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 Zalando, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.