ALK-Abelló (CPH:ALK B) Seems To Use Debt Quite Sensibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies ALK-Abelló A/S (CPH:ALK B) makes use of debt. But the real question is whether this debt is making the company risky.

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 ALK-Abelló's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 ALK-Abelló had kr.478.0m of debt, an increase on kr.199.0m, over one year. However, it does have kr.517.0m in cash offsetting this, leading to net cash of kr.39.0m.

How Healthy Is ALK-Abelló's Balance Sheet?

According to the last reported balance sheet, ALK-Abelló had liabilities of kr.1.60b due within 12 months, and liabilities of kr.908.0m due beyond 12 months. Offsetting these obligations, it had cash of kr.517.0m as well as receivables valued at kr.965.0m due within 12 months. So its liabilities total kr.1.03b more than the combination of its cash and short-term receivables.

Since publicly traded ALK-Abelló shares are worth a total of kr.40.5b, 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. Despite its noteworthy liabilities, ALK-Abelló boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for ALK-Abelló

In addition to that, we're happy to report that ALK-Abelló has boosted its EBIT by 66%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ALK-Abelló'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While ALK-Abelló has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, ALK-Abelló recorded free cash flow of 22% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about ALK-Abelló's liabilities, but we can be reassured by the fact it has has net cash of kr.39.0m. And we liked the look of last year's 66% year-on-year EBIT growth. So is ALK-Abelló's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of ALK-Abelló's earnings per share history for free.

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.