Is Orion Oyj (HEL:ORNBV) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Orion Oyj (HEL:ORNBV) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Orion Oyj's Net Debt?

As you can see below, at the end of June 2025, Orion Oyj had €317.9m of debt, up from €263.7m a year ago. Click the image for more detail. On the flip side, it has €183.6m in cash leading to net debt of about €134.3m.

How Strong Is Orion Oyj's Balance Sheet?

According to the last reported balance sheet, Orion Oyj had liabilities of €540.8m due within 12 months, and liabilities of €185.4m due beyond 12 months. Offsetting this, it had €183.6m in cash and €382.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €160.3m.

This state of affairs indicates that Orion Oyj's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the €9.49b company is short on cash, but still worth keeping an eye on the balance sheet. Carrying virtually no net debt, Orion Oyj has a very light debt load indeed.

Check out our latest analysis for Orion Oyj

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Orion Oyj's net debt is only 0.28 times its EBITDA. And its EBIT easily covers its interest expense, being 127 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. On top of that, Orion Oyj grew its EBIT by 69% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Orion 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the most recent three years, Orion Oyj recorded free cash flow worth 59% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

The good news is that Orion Oyj's demonstrated ability to cover its interest expense with its EBIT delights us like a fluffy puppy does a toddler. And that's just the beginning of the good news since its EBIT growth rate is also very heartening. Considering this range of factors, it seems to us that Orion Oyj is quite prudent with its debt, and the risks seem well managed. So we're not worried about the use of a little leverage on the balance sheet. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Orion Oyj you should know about.

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.