Here's Why Neste Oyj (HEL:NESTE) Can Afford Some Debt

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 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 note that Neste Oyj (HEL:NESTE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Neste Oyj's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Neste Oyj had €4.41b of debt, an increase on €3.75b, over one year. However, because it has a cash reserve of €981.0m, its net debt is less, at about €3.43b.

How Healthy Is Neste Oyj's Balance Sheet?

According to the last reported balance sheet, Neste Oyj had liabilities of €2.96b due within 12 months, and liabilities of €5.37b due beyond 12 months. Offsetting this, it had €981.0m in cash and €1.35b in receivables that were due within 12 months. So it has liabilities totalling €6.00b more than its cash and near-term receivables, combined.

Neste Oyj has a very large market capitalization of €12.2b, 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. 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 Neste Oyj 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.

View our latest analysis for Neste Oyj

In the last year Neste Oyj had a loss before interest and tax, and actually shrunk its revenue by 4.6%, to €21b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Neste Oyj produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €68m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of €189m into a profit. So to be blunt we do think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Neste Oyj that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.