Here's Why Sláturfélags Suðurlands svf (ICE:SFS B) Can Manage Its Debt Responsibly

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. Importantly, Sláturfélags Suðurlands svf. (ICE:SFS B) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

How Much Debt Does Sláturfélags Suðurlands svf Carry?

The chart below, which you can click on for greater detail, shows that Sláturfélags Suðurlands svf had Kr2.06b in debt in June 2025; about the same as the year before. But it also has Kr2.40b in cash to offset that, meaning it has Kr345.2m net cash.

How Healthy Is Sláturfélags Suðurlands svf's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sláturfélags Suðurlands svf had liabilities of Kr2.44b due within 12 months and liabilities of Kr3.38b due beyond that. On the other hand, it had cash of Kr2.40b and Kr2.65b worth of receivables due within a year. So it has liabilities totalling Kr770.0m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Sláturfélags Suðurlands svf has a market capitalization of Kr1.72b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Sláturfélags Suðurlands svf also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Sláturfélags Suðurlands svf

On the other hand, Sláturfélags Suðurlands svf saw its EBIT drop by 4.1% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Sláturfélags Suðurlands svf will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Sláturfélags Suðurlands svf 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. Over the last three years, Sláturfélags Suðurlands svf recorded free cash flow worth a fulsome 85% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While Sláturfélags Suðurlands svf does have more liabilities than liquid assets, it also has net cash of Kr345.2m. The cherry on top was that in converted 85% of that EBIT to free cash flow, bringing in Kr530m. So we don't have any problem with Sláturfélags Suðurlands svf's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Sláturfélags Suðurlands svf you should be aware of, and 1 of them is potentially serious.

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.