Does SMA Solar Technology (ETR:S92) Have A 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 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, SMA Solar Technology AG (ETR:S92) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is SMA Solar Technology's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 SMA Solar Technology had €221.2m of debt, an increase on €22.9m, over one year. However, it does have €294.4m in cash offsetting this, leading to net cash of €73.1m.

How Strong Is SMA Solar Technology's Balance Sheet?

According to the last reported balance sheet, SMA Solar Technology had liabilities of €742.4m due within 12 months, and liabilities of €337.8m due beyond 12 months. Offsetting this, it had €294.4m in cash and €171.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €614.2m.

This deficit is considerable relative to its market capitalization of €665.5m, so it does suggest shareholders should keep an eye on SMA Solar Technology's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, SMA Solar Technology boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine SMA Solar Technology'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.

Check out our latest analysis for SMA Solar Technology

Over 12 months, SMA Solar Technology made a loss at the EBIT level, and saw its revenue drop to €1.5b, which is a fall of 21%. That makes us nervous, to say the least.

So How Risky Is SMA Solar Technology?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months SMA Solar Technology lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €43m of cash and made a loss of €141m. Given it only has net cash of €73.1m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that SMA Solar Technology is showing 2 warning signs in our investment analysis , you should know about...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.