Desarrollos Especiales de Sistemas de Anclaje (BME:DESA) Has A Pretty 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. We note that Desarrollos Especiales de Sistemas de Anclaje, S.A. (BME:DESA) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Desarrollos Especiales de Sistemas de Anclaje's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Desarrollos Especiales de Sistemas de Anclaje had debt of €6.44m, up from €5.09m in one year. However, it does have €568.0k in cash offsetting this, leading to net debt of about €5.88m.

A Look At Desarrollos Especiales de Sistemas de Anclaje's Liabilities

According to the last reported balance sheet, Desarrollos Especiales de Sistemas de Anclaje had liabilities of €18.1m due within 12 months, and liabilities of €4.45m due beyond 12 months. On the other hand, it had cash of €568.0k and €11.8m worth of receivables due within a year. So it has liabilities totalling €10.2m more than its cash and near-term receivables, combined.

Desarrollos Especiales de Sistemas de Anclaje has a market capitalization of €32.6m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution.

Check out our latest analysis for Desarrollos Especiales de Sistemas de Anclaje

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Desarrollos Especiales de Sistemas de Anclaje's net debt is only 1.2 times its EBITDA. And its EBIT covers its interest expense a whopping 116 times over. So we're pretty relaxed about its super-conservative use of debt. Fortunately, Desarrollos Especiales de Sistemas de Anclaje grew its EBIT by 4.1% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Desarrollos Especiales de Sistemas de Anclaje's ability to maintain a healthy balance sheet going forward. 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. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Desarrollos Especiales de Sistemas de Anclaje produced sturdy free cash flow equating to 76% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Our View

Desarrollos Especiales de Sistemas de Anclaje's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its conversion of EBIT to free cash flow also supports that impression! When we consider the range of factors above, it looks like Desarrollos Especiales de Sistemas de Anclaje is pretty sensible with its use of debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Desarrollos Especiales de Sistemas de Anclaje has 2 warning signs we think you should be aware of.

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.