Nueva Expresión Textil (BME:NXT) Takes On Some Risk With Its Use Of Debt

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.' 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. We can see that Nueva Expresión Textil, S.A. (BME:NXT) does use debt in its business. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Nueva Expresión Textil Carry?

You can click the graphic below for the historical numbers, but it shows that Nueva Expresión Textil had €9.31m of debt in June 2025, down from €49.6m, one year before. On the flip side, it has €6.84m in cash leading to net debt of about €2.48m.

How Strong Is Nueva Expresión Textil's Balance Sheet?

The latest balance sheet data shows that Nueva Expresión Textil had liabilities of €30.4m due within a year, and liabilities of €19.9m falling due after that. Offsetting these obligations, it had cash of €6.84m as well as receivables valued at €12.5m due within 12 months. So its liabilities total €31.0m more than the combination of its cash and short-term receivables.

Given Nueva Expresión Textil has a market capitalization of €328.6m, 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. But either way, Nueva Expresión Textil has virtually no net debt, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Nueva Expresión Textil

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Given net debt is only 0.46 times EBITDA, it is initially surprising to see that Nueva Expresión Textil's EBIT has low interest coverage of 1.7 times. So one way or the other, it's clear the debt levels are not trivial. Notably, Nueva Expresión Textil made a loss at the EBIT level, last year, but improved that to positive EBIT of €3.3m in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Nueva Expresión Textil will need earnings to service that debt. 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. So it's worth checking how much of the earnings before interest and tax (EBIT) is backed by free cash flow. During the last year, Nueva Expresión Textil burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

Both Nueva Expresión Textil's conversion of EBIT to free cash flow and its interest cover were discouraging. But on the brighter side of life, its net debt to EBITDA leaves us feeling more frolicsome. Taking the abovementioned factors together we do think Nueva Expresión Textil's debt poses some risks to the business. While that debt can boost returns, we think the company has enough leverage now. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Nueva Expresión Textil you should be aware of, and 1 of them doesn't sit too well with us.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.