Wärtsilä Oyj Abp (HEL:WRT1V) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Wärtsilä Oyj Abp (HEL:WRT1V) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

View our latest analysis for Wärtsilä Oyj Abp

What Is Wärtsilä Oyj Abp's Debt?

As you can see below, Wärtsilä Oyj Abp had €508.0m of debt at December 2024, down from €591.0m a year prior. But it also has €1.55b in cash to offset that, meaning it has €1.05b net cash.

How Strong Is Wärtsilä Oyj Abp's Balance Sheet?

According to the last reported balance sheet, Wärtsilä Oyj Abp had liabilities of €4.12b due within 12 months, and liabilities of €1.04b due beyond 12 months. Offsetting this, it had €1.55b in cash and €1.89b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.72b.

Given Wärtsilä Oyj Abp has a humongous market capitalization of €10.3b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Wärtsilä Oyj Abp boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Wärtsilä Oyj Abp has boosted its EBIT by 63%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Wärtsilä Oyj Abp'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. 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. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While Wärtsilä Oyj Abp does have more liabilities than liquid assets, it also has net cash of €1.05b. The cherry on top was that in converted 125% of that EBIT to free cash flow, bringing in €1.0b. So we don't think Wärtsilä Oyj Abp's use of debt is risky. Another factor that would give us confidence in Wärtsilä Oyj Abp would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.