These 4 Measures Indicate That Industria de Diseño Textil (BME:ITX) Is Using Debt Safely

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. We note that Industria de Diseño Textil, S.A. (BME:ITX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Industria de Diseño Textil's Debt?

You can click the graphic below for the historical numbers, but it shows that Industria de Diseño Textil had €6.00m of debt in January 2025, down from €15.0m, one year before. However, its balance sheet shows it holds €11.5b in cash, so it actually has €11.5b net cash.

How Strong Is Industria de Diseño Textil's Balance Sheet?

The latest balance sheet data shows that Industria de Diseño Textil had liabilities of €10.2b due within a year, and liabilities of €4.85b falling due after that. Offsetting this, it had €11.5b in cash and €1.41b in receivables that were due within 12 months. So it has liabilities totalling €2.12b more than its cash and near-term receivables, combined.

Having regard to Industria de Diseño Textil's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €145.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. 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.

View our latest analysis for Industria de Diseño Textil

Also good is that Industria de Diseño Textil grew its EBIT at 11% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Industria de Diseño Textil'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. Industria de Diseño Textil 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, Industria de Diseño Textil generated free cash flow amounting to a very robust 93% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about Industria de Diseño Textil's liabilities, but we can be reassured by the fact it has has net cash of €11.5b. And it impressed us with free cash flow of €6.6b, being 93% of its EBIT. So is Industria de Diseño Textil'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. Be aware that Industria de Diseño Textil is showing 1 warning sign in our investment analysis , you should know about...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.