Does Per Aarsleff Holding (CPH:PAAL B) 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. As with many other companies Per Aarsleff Holding A/S (CPH:PAAL B) makes use of debt. But is this debt a concern to shareholders?

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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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Per Aarsleff Holding's Net Debt?

The chart below, which you can click on for greater detail, shows that Per Aarsleff Holding had kr.1.04b in debt in December 2024; about the same as the year before. However, it does have kr.1.45b in cash offsetting this, leading to net cash of kr.417.0m.

How Healthy Is Per Aarsleff Holding's Balance Sheet?

According to the last reported balance sheet, Per Aarsleff Holding had liabilities of kr.6.62b due within 12 months, and liabilities of kr.2.39b due beyond 12 months. On the other hand, it had cash of kr.1.45b and kr.7.00b worth of receivables due within a year. So its liabilities total kr.564.0m more than the combination of its cash and short-term receivables.

Given Per Aarsleff Holding has a market capitalization of kr.11.0b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Per Aarsleff Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Per Aarsleff Holding

Fortunately, Per Aarsleff Holding grew its EBIT by 4.8% in the last year, making that debt load look even more manageable. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Per Aarsleff Holding can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Per Aarsleff Holding may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Per Aarsleff Holding produced sturdy free cash flow equating to 65% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Per Aarsleff Holding has kr.417.0m in net cash. So is Per Aarsleff Holding'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 Per Aarsleff Holding, 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.