Industria de Diseño Textil (BME:ITX) Has A Rock Solid Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Industria de Diseño Textil, S.A. (BME:ITX) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Industria de Diseño Textil's Net Debt?

The image below, which you can click on for greater detail, shows that Industria de Diseño Textil had debt of €7.00m at the end of April 2025, a reduction from €22.0m over a year. However, it does have €10.8b in cash offsetting this, leading to net cash of €10.8b.

A Look At Industria de Diseño Textil's Liabilities

According to the last reported balance sheet, Industria de Diseño Textil had liabilities of €12.1b due within 12 months, and liabilities of €4.67b due beyond 12 months. Offsetting these obligations, it had cash of €10.8b as well as receivables valued at €1.13b due within 12 months. So it has liabilities totalling €4.81b more than its cash and near-term receivables, combined.

Of course, Industria de Diseño Textil has a titanic market capitalization of €131.4b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Industria de Diseño Textil also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Industria de Diseño Textil

Fortunately, Industria de Diseño Textil grew its EBIT by 8.4% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Industria de Diseño Textil can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Industria de Diseño Textil 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. Over the last three years, Industria de Diseño Textil recorded free cash flow worth a fulsome 93% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Industria de Diseño Textil has €10.8b in net cash. The cherry on top was that in converted 93% of that EBIT to free cash flow, bringing in €6.6b. So we don't think Industria de Diseño Textil's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Industria de Diseño Textil that you should be aware of.

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.