Does Wärtsilä Oyj Abp (HEL:WRT1V) Have A Healthy Balance Sheet?

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.' 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 note that Wärtsilä Oyj Abp (HEL:WRT1V) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Wärtsilä Oyj Abp Carry?

As you can see below, Wärtsilä Oyj Abp had €371.0m of debt at June 2025, down from €506.0m a year prior. But on the other hand it also has €1.70b in cash, leading to a €1.33b net cash position.

How Healthy Is Wärtsilä Oyj Abp's Balance Sheet?

According to the last reported balance sheet, Wärtsilä Oyj Abp had liabilities of €4.43b due within 12 months, and liabilities of €957.0m due beyond 12 months. Offsetting these obligations, it had cash of €1.70b as well as receivables valued at €1.78b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.91b.

Since publicly traded Wärtsilä Oyj Abp shares are worth a very impressive total of €14.8b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Wärtsilä Oyj Abp also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Wärtsilä Oyj Abp

On top of that, Wärtsilä Oyj Abp grew its EBIT by 35% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Wärtsilä Oyj Abp 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. Wärtsilä Oyj Abp 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. Over the last three years, Wärtsilä Oyj Abp actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Wärtsilä Oyj Abp's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €1.33b. And it impressed us with free cash flow of €1.2b, being 142% of its EBIT. So we don't think Wärtsilä Oyj Abp's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Wärtsilä Oyj Abp, you may well want to click here to check an interactive graph of its earnings per share history.

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.