Here's Why Dampskibsselskabet Norden (CPH:DNORD) Can Manage Its Debt Responsibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Dampskibsselskabet Norden A/S (CPH:DNORD) 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 assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Dampskibsselskabet Norden's Debt?

As you can see below, Dampskibsselskabet Norden had US$130.4m of debt at June 2025, down from US$210.6m a year prior. But it also has US$279.8m in cash to offset that, meaning it has US$149.4m net cash.

A Look At Dampskibsselskabet Norden's Liabilities

The latest balance sheet data shows that Dampskibsselskabet Norden had liabilities of US$608.2m due within a year, and liabilities of US$323.3m falling due after that. Offsetting these obligations, it had cash of US$279.8m as well as receivables valued at US$462.6m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$189.1m.

Of course, Dampskibsselskabet Norden has a market capitalization of US$1.11b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Dampskibsselskabet Norden boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Dampskibsselskabet Norden

Shareholders should be aware that Dampskibsselskabet Norden's EBIT was down 46% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. There's no doubt that we learn most about debt from the balance sheet. But it is Dampskibsselskabet Norden's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Dampskibsselskabet Norden 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, Dampskibsselskabet Norden generated free cash flow amounting to a very robust 91% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

Although Dampskibsselskabet Norden's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$149.4m. The cherry on top was that in converted 91% of that EBIT to free cash flow, bringing in US$107m. So we are not troubled with Dampskibsselskabet Norden's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Dampskibsselskabet Norden that you should be aware of.

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.