Stock Analysis

AD Plastik d.d (ZGSE:ADPL) Has A Somewhat Strained Balance Sheet

ZGSE:ADPL
Source: Shutterstock

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 AD Plastik d.d. (ZGSE:ADPL) does use debt in its business. But the real question is whether this debt is making the company risky.

Advertisement

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does AD Plastik d.d Carry?

You can click the graphic below for the historical numbers, but it shows that AD Plastik d.d had €43.7m of debt in March 2025, down from €51.9m, one year before. However, it also had €4.55m in cash, and so its net debt is €39.2m.

debt-equity-history-analysis
ZGSE:ADPL Debt to Equity History July 18th 2025

A Look At AD Plastik d.d's Liabilities

We can see from the most recent balance sheet that AD Plastik d.d had liabilities of €50.1m falling due within a year, and liabilities of €27.6m due beyond that. On the other hand, it had cash of €4.55m and €29.7m worth of receivables due within a year. So it has liabilities totalling €43.5m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of €49.1m, so it does suggest shareholders should keep an eye on AD Plastik d.d's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.

View our latest analysis for AD Plastik d.d

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). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

While we wouldn't worry about AD Plastik d.d's net debt to EBITDA ratio of 3.6, we think its super-low interest cover of 1.8 times is a sign of high leverage. In large part that's due to the company's significant depreciation and amortisation charges, which arguably mean its EBITDA is a very generous measure of earnings, and its debt may be more of a burden than it first appears. It seems clear that the cost of borrowing money is negatively impacting returns for shareholders, of late. One redeeming factor for AD Plastik d.d is that it turned last year's EBIT loss into a gain of €2.5m, over 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 AD Plastik d.d 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. Happily for any shareholders, AD Plastik d.d actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

AD Plastik d.d's interest cover and level of total liabilities definitely weigh on it, in our esteem. But the good news is it seems to be able to convert EBIT to free cash flow with ease. When we consider all the factors discussed, it seems to us that AD Plastik d.d is taking some risks with its use of debt. While that debt can boost returns, we think the company has enough leverage now. 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. Be aware that AD Plastik d.d is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.

New: Manage All Your Stock Portfolios in One Place

We've created the ultimate portfolio companion for stock investors, and it's free.

• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks

Try a Demo Portfolio for Free

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.

About ZGSE:ADPL

AD Plastik d.d

Develops, produces, and sells interior and exterior automotive components in Slovenia, Romania, Russia, France, Hungary, Italy, the United Kingdom, Germany, Spain, Serbia, Czech Republic, Vietnam, Slovakia, Croatia, Poland, the United States, and internationally.

Excellent balance sheet and good value.

Advertisement