LleidaNetworks Serveis Telemàtics (BME:LLN) Has A Pretty Healthy Balance Sheet

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.' 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 can see that LleidaNetworks Serveis Telemàtics, S.A. (BME:LLN) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is LleidaNetworks Serveis Telemàtics's Debt?

As you can see below, LleidaNetworks Serveis Telemàtics had €6.09m of debt at June 2025, down from €8.10m a year prior. However, it does have €894.9k in cash offsetting this, leading to net debt of about €5.20m.

How Healthy Is LleidaNetworks Serveis Telemàtics' Balance Sheet?

According to the last reported balance sheet, LleidaNetworks Serveis Telemàtics had liabilities of €8.66m due within 12 months, and liabilities of €3.04m due beyond 12 months. Offsetting these obligations, it had cash of €894.9k as well as receivables valued at €5.06m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €5.75m.

LleidaNetworks Serveis Telemàtics has a market capitalization of €21.4m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt.

Check out our latest analysis for LleidaNetworks Serveis Telemàtics

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

LleidaNetworks Serveis Telemàtics's net debt is 2.7 times its EBITDA, which is a significant but still reasonable amount of leverage. However, its interest coverage of 11.1 is very high, suggesting that the interest expense on the debt is currently quite low. We also note that LleidaNetworks Serveis Telemàtics improved its EBIT from a last year's loss to a positive €1.9m. 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 LleidaNetworks Serveis Telemàtics will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So it's worth checking how much of the earnings before interest and tax (EBIT) is backed by free cash flow. Over the last year, LleidaNetworks Serveis Telemàtics actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our View

Happily, LleidaNetworks Serveis Telemàtics's impressive conversion of EBIT to free cash flow implies it has the upper hand on its debt. But, on a more sombre note, we are a little concerned by its net debt to EBITDA. All these things considered, it appears that LleidaNetworks Serveis Telemàtics can comfortably handle its current debt levels. Of course, while this leverage can enhance returns on equity, it does bring more risk, so it's worth keeping an eye on this one. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for LleidaNetworks Serveis Telemàtics (1 doesn't sit too well with us!) that you should be aware of before investing here.

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.