These 4 Measures Indicate That Jadranski naftovod d.d (ZGSE:JNAF) Is Using Debt Safely

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.' 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. As with many other companies Jadranski naftovod d.d. (ZGSE:JNAF) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Jadranski naftovod d.d Carry?

As you can see below, Jadranski naftovod d.d had €11.2m of debt at June 2025, down from €11.9m a year prior. But on the other hand it also has €111.0m in cash, leading to a €99.7m net cash position.

A Look At Jadranski naftovod d.d's Liabilities

Zooming in on the latest balance sheet data, we can see that Jadranski naftovod d.d had liabilities of €7.49m due within 12 months and liabilities of €15.4m due beyond that. Offsetting this, it had €111.0m in cash and €81.7m in receivables that were due within 12 months. So it actually has €169.8m more liquid assets than total liabilities.

This surplus suggests that Jadranski naftovod d.d is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Jadranski naftovod d.d boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Jadranski naftovod d.d

But the bad news is that Jadranski naftovod d.d has seen its EBIT plunge 10% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But it is Jadranski naftovod d.d's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Jadranski naftovod d.d 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. During the last three years, Jadranski naftovod d.d produced sturdy free cash flow equating to 80% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Jadranski naftovod d.d has net cash of €99.7m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of €40m, being 80% of its EBIT. So we don't think Jadranski naftovod d.d's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Jadranski naftovod d.d (1 is 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.