Does Per Aarsleff Holding (CPH:PAAL B) Have A Healthy Balance Sheet?

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 Per Aarsleff Holding A/S (CPH:PAAL B) makes use of debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Per Aarsleff Holding Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Per Aarsleff Holding had kr.1.15b of debt, an increase on kr.887.0m, over one year. But it also has kr.1.63b in cash to offset that, meaning it has kr.481.0m net cash.

A Look At Per Aarsleff Holding's Liabilities

We can see from the most recent balance sheet that Per Aarsleff Holding had liabilities of kr.7.15b falling due within a year, and liabilities of kr.2.57b due beyond that. On the other hand, it had cash of kr.1.63b and kr.7.12b worth of receivables due within a year. So it has liabilities totalling kr.965.0m more than its cash and near-term receivables, combined.

Of course, Per Aarsleff Holding has a market capitalization of kr.11.9b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Per Aarsleff Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Per Aarsleff Holding

But the other side of the story is that Per Aarsleff Holding saw its EBIT decline by 2.3% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Per Aarsleff Holding'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, while the tax-man may adore accounting profits, lenders only accept 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 generated free cash flow amounting to a very robust 84% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

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.481.0m in net cash. The cherry on top was that in converted 84% of that EBIT to free cash flow, bringing in kr.1.2b. So we don't think Per Aarsleff Holding's use of debt is risky. 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.

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.