We Think Industrie De Nora (BIT:DNR) Can Stay On Top Of Its Debt

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. As with many other companies Industrie De Nora S.p.A. (BIT:DNR) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 Industrie De Nora's Debt?

As you can see below, Industrie De Nora had €139.7m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has €187.8m in cash to offset that, meaning it has €48.1m net cash.

How Strong Is Industrie De Nora's Balance Sheet?

According to the last reported balance sheet, Industrie De Nora had liabilities of €266.0m due within 12 months, and liabilities of €174.3m due beyond 12 months. Offsetting these obligations, it had cash of €187.8m as well as receivables valued at €255.9m due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Industrie De Nora's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €1.35b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Industrie De Nora has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Industrie De Nora

But the bad news is that Industrie De Nora has seen its EBIT plunge 17% 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 future earnings, more than anything, that will determine Industrie De Nora's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Industrie De Nora 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. In the last three years, Industrie De Nora's free cash flow amounted to 34% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Industrie De Nora has €48.1m in net cash and a decent-looking balance sheet. So we are not troubled with Industrie De Nora's debt use. 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. Be aware that Industrie De Nora is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.