We Think Motor Oil (Hellas) Corinth Refineries (ATH:MOH) Is Taking Some Risk With Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Motor Oil (Hellas) Corinth Refineries S.A. (ATH:MOH) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Motor Oil (Hellas) Corinth Refineries's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Motor Oil (Hellas) Corinth Refineries had debt of €2.79b, up from €2.60b in one year. However, it also had €1.08b in cash, and so its net debt is €1.72b.

How Strong Is Motor Oil (Hellas) Corinth Refineries' Balance Sheet?

According to the last reported balance sheet, Motor Oil (Hellas) Corinth Refineries had liabilities of €1.39b due within 12 months, and liabilities of €3.20b due beyond 12 months. Offsetting these obligations, it had cash of €1.08b as well as receivables valued at €1.13b due within 12 months. So its liabilities total €2.38b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €2.78b, so it does suggest shareholders should keep an eye on Motor Oil (Hellas) Corinth Refineries' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry.

Check out our latest analysis for Motor Oil (Hellas) Corinth Refineries

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). 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).

Motor Oil (Hellas) Corinth Refineries has a debt to EBITDA ratio of 3.7 and its EBIT covered its interest expense 3.9 times. This suggests that while the debt levels are significant, we'd stop short of calling them problematic. Worse, Motor Oil (Hellas) Corinth Refineries's EBIT was down 80% over the last year. 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 Motor Oil (Hellas) Corinth Refineries 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 company can only pay off debt with cold hard cash, not accounting profits. So it's worth checking how much of that EBIT is backed by free cash flow. Looking at the most recent three years, Motor Oil (Hellas) Corinth Refineries recorded free cash flow of 40% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Our View

We'd go so far as to say Motor Oil (Hellas) Corinth Refineries's EBIT growth rate was disappointing. But at least its conversion of EBIT to free cash flow is not so bad. We're quite clear that we consider Motor Oil (Hellas) Corinth Refineries to be really rather risky, as a result of its balance sheet health. So we're almost as wary of this stock as a hungry kitten is about falling into its owner's fish pond: once bitten, twice shy, as they say. 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. For instance, we've identified 4 warning signs for Motor Oil (Hellas) Corinth Refineries (2 are a bit unpleasant) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.