Here's Why HELLENiQ ENERGY Holdings (ATH:ELPE) Is Weighed Down By Its Debt Load

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 can see that HELLENiQ ENERGY Holdings S.A. (ATH:ELPE) does use debt in its business. But should shareholders be worried about its use of debt?

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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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 think about a company's use of debt, we first look at cash and debt together.

What Is HELLENiQ ENERGY Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 HELLENiQ ENERGY Holdings had €3.00b of debt, an increase on €2.23b, over one year. However, it also had €513.2m in cash, and so its net debt is €2.49b.

How Strong Is HELLENiQ ENERGY Holdings' Balance Sheet?

We can see from the most recent balance sheet that HELLENiQ ENERGY Holdings had liabilities of €1.78b falling due within a year, and liabilities of €3.40b due beyond that. Offsetting this, it had €513.2m in cash and €935.9m in receivables that were due within 12 months. So its liabilities total €3.73b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the €2.39b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, HELLENiQ ENERGY Holdings would likely require a major re-capitalisation if it had to pay its creditors today.

See our latest analysis for HELLENiQ ENERGY Holdings

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).

HELLENiQ ENERGY Holdings shareholders face the double whammy of a high net debt to EBITDA ratio (5.4), and fairly weak interest coverage, since EBIT is just 1.9 times the interest expense. This means we'd consider it to have a heavy debt load. Even worse, HELLENiQ ENERGY Holdings saw its EBIT tank 76% over the last 12 months. If earnings continue to follow that trajectory, paying off that debt load will be harder than convincing us to run a marathon in the rain. 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 HELLENiQ ENERGY Holdings 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 it's worth checking how much of that EBIT is backed by free cash flow. Looking at the most recent three years, HELLENiQ ENERGY Holdings recorded free cash flow of 39% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

On the face of it, HELLENiQ ENERGY Holdings's level of total liabilities left us tentative about the stock, and its EBIT growth rate was no more enticing than the one empty restaurant on the busiest night of the year. But at least its conversion of EBIT to free cash flow is not so bad. After considering the datapoints discussed, we think HELLENiQ ENERGY Holdings has too much debt. While some investors love that sort of risky play, it's certainly not our cup of tea. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for HELLENiQ ENERGY Holdings 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.