Is Técnicas Reunidas (BME:TRE) Using Too Much Debt?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Técnicas Reunidas, S.A. (BME:TRE) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Técnicas Reunidas Carry?

As you can see below, Técnicas Reunidas had €635.0m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has €1.06b in cash to offset that, meaning it has €423.1m net cash.

A Look At Técnicas Reunidas' Liabilities

We can see from the most recent balance sheet that Técnicas Reunidas had liabilities of €3.61b falling due within a year, and liabilities of €499.4m due beyond that. On the other hand, it had cash of €1.06b and €3.04b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Técnicas Reunidas' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the €1.46b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Técnicas Reunidas boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Técnicas Reunidas

Another good sign is that Técnicas Reunidas has been able to increase its EBIT by 25% in twelve months, making it easier to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Técnicas Reunidas can strengthen its balance sheet over time. 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 company can only pay off debt with cold hard cash, not accounting profits. While Técnicas Reunidas 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. In the last three years, Técnicas Reunidas's free cash flow amounted to 49% of its EBIT, less 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 Técnicas Reunidas's liabilities, but we can be reassured by the fact it has has net cash of €423.1m. And it impressed us with its EBIT growth of 25% over the last year. So is Técnicas Reunidas's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Técnicas Reunidas that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.