Is Schweizer Electronic (ETR:SCE) Using Debt In A Risky Way?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Schweizer Electronic AG (ETR:SCE) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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 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, 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 Schweizer Electronic's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Schweizer Electronic had €20.4m of debt in June 2025, down from €23.0m, one year before. However, it does have €12.0m in cash offsetting this, leading to net debt of about €8.44m.

How Strong Is Schweizer Electronic's Balance Sheet?

The latest balance sheet data shows that Schweizer Electronic had liabilities of €58.9m due within a year, and liabilities of €36.4m falling due after that. Offsetting this, it had €12.0m in cash and €43.2m in receivables that were due within 12 months. So its liabilities total €40.1m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the €12.4m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Schweizer Electronic would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Schweizer Electronic'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.

See our latest analysis for Schweizer Electronic

In the last year Schweizer Electronic wasn't profitable at an EBIT level, but managed to grow its revenue by 5.2%, to €152m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Schweizer Electronic had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable €7.2m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of €8.7m in the last year. So we think this stock is quite risky. We'd prefer to pass. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Schweizer Electronic that you should be aware of before investing here.

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.