Here's Why EKINOPS (EPA:EKI) Can Manage Its Debt Responsibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 EKINOPS S.A. (EPA:EKI) does use debt in its business. But is this debt a concern to shareholders?

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

When Is Debt A Problem?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does EKINOPS Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 EKINOPS had €28.0m of debt, an increase on €23.8m, over one year. However, its balance sheet shows it holds €36.7m in cash, so it actually has €8.72m net cash.

How Strong Is EKINOPS' Balance Sheet?

We can see from the most recent balance sheet that EKINOPS had liabilities of €50.5m falling due within a year, and liabilities of €36.0m due beyond that. Offsetting these obligations, it had cash of €36.7m as well as receivables valued at €37.2m due within 12 months. So its liabilities total €12.5m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because EKINOPS is worth €38.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, EKINOPS also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for EKINOPS

Notably, EKINOPS made a loss at the EBIT level, last year, but improved that to positive EBIT of €4.8m in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if EKINOPS 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. EKINOPS 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 year, EKINOPS 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 EKINOPS does have more liabilities than liquid assets, it also has net cash of €8.72m. And it impressed us with free cash flow of €12m, being 241% of its EBIT. So we are not troubled with EKINOPS's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that EKINOPS is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.