These 4 Measures Indicate That PVA TePla (ETR:TPE) Is Using Debt Reasonably Well

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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 PVA TePla AG (ETR:TPE) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is PVA TePla's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 PVA TePla had €24.0m of debt, an increase on €16.2m, over one year. However, because it has a cash reserve of €18.4m, its net debt is less, at about €5.55m.

How Healthy Is PVA TePla's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that PVA TePla had liabilities of €112.5m due within 12 months and liabilities of €45.6m due beyond that. Offsetting these obligations, it had cash of €18.4m as well as receivables valued at €95.9m due within 12 months. So its liabilities total €43.7m more than the combination of its cash and short-term receivables.

Since publicly traded PVA TePla shares are worth a total of €458.2m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, PVA TePla has virtually no net debt, so it's fair to say it does not have a heavy debt load!

See our latest analysis for PVA TePla

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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

PVA TePla's net debt is only 0.13 times its EBITDA. And its EBIT covers its interest expense a whopping 81.9 times over. So we're pretty relaxed about its super-conservative use of debt. Fortunately, PVA TePla grew its EBIT by 6.9% in the last year, making that debt load look even more manageable. 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 PVA TePla'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 it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, PVA TePla recorded negative free cash flow, in total. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Our View

PVA TePla's interest cover was a real positive on this analysis, as was its net debt to EBITDA. In contrast, our confidence was undermined by its apparent struggle to convert EBIT to free cash flow. Considering this range of data points, we think PVA TePla is in a good position to manage its debt levels. But a word of caution: we think debt levels are high enough to justify ongoing monitoring. Over time, share prices tend to follow earnings per share, so if you're interested in PVA TePla, 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.