Is ProCook Group (LON:PROC) 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, ProCook Group plc (LON:PROC) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is ProCook Group's Debt?

You can click the graphic below for the historical numbers, but it shows that ProCook Group had UK£1.81m of debt in March 2025, down from UK£2.75m, one year before. But on the other hand it also has UK£2.76m in cash, leading to a UK£957.0k net cash position.

A Look At ProCook Group's Liabilities

We can see from the most recent balance sheet that ProCook Group had liabilities of UK£19.7m falling due within a year, and liabilities of UK£20.3m due beyond that. On the other hand, it had cash of UK£2.76m and UK£2.58m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by UK£34.7m.

This is a mountain of leverage relative to its market capitalization of UK£46.1m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, ProCook Group boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for ProCook Group

One way ProCook Group could vanquish its debt would be if it stops borrowing more but continues to grow EBIT at around 11%, as it did over the last year. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ProCook Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While ProCook Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, ProCook Group actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While ProCook Group does have more liabilities than liquid assets, it also has net cash of UK£957.0k. And it impressed us with free cash flow of UK£7.1m, being 292% of its EBIT. So we don't have any problem with ProCook Group's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - ProCook Group has 2 warning signs we think you should be aware of.

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.