Is Danish Aerospace (CPH:DAC) Using Too Much Debt?

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 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, Danish Aerospace Company A/S (CPH:DAC) does carry debt. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Danish Aerospace's Debt?

The image below, which you can click on for greater detail, shows that Danish Aerospace had debt of kr.13.4m at the end of December 2024, a reduction from kr.15.7m over a year. On the flip side, it has kr.297.4k in cash leading to net debt of about kr.13.1m.

How Healthy Is Danish Aerospace's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Danish Aerospace had liabilities of kr.15.8m due within 12 months and liabilities of kr.2.66m due beyond that. On the other hand, it had cash of kr.297.4k and kr.19.5m worth of receivables due within a year. So it actually has kr.1.27m more liquid assets than total liabilities.

This state of affairs indicates that Danish Aerospace's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the kr.101.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Danish Aerospace will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

Check out our latest analysis for Danish Aerospace

In the last year Danish Aerospace had a loss before interest and tax, and actually shrunk its revenue by 38%, to kr.19m. That makes us nervous, to say the least.

Caveat Emptor

While Danish Aerospace's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost kr.3.5m at the EBIT level. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd be more likely to spend time trying to understand the stock if the company made a profit. This one is a bit too risky for our liking. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 5 warning signs we've spotted with Danish Aerospace (including 2 which are a bit concerning) .

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.