Here's Why Saipem (BIT:SPM) Can Manage Its Debt Responsibly

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Saipem SpA (BIT:SPM) does carry 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Saipem's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Saipem had €1.75b of debt in June 2025, down from €2.21b, one year before. However, its balance sheet shows it holds €2.28b in cash, so it actually has €532.0m net cash.

How Strong Is Saipem's Balance Sheet?

The latest balance sheet data shows that Saipem had liabilities of €7.80b due within a year, and liabilities of €3.48b falling due after that. Offsetting these obligations, it had cash of €2.28b as well as receivables valued at €5.42b due within 12 months. So its liabilities total €3.57b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of €4.45b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, Saipem boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Saipem

On top of that, Saipem grew its EBIT by 35% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Saipem's ability to maintain a healthy balance sheet going forward. 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. Saipem 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. Over the most recent three years, Saipem recorded free cash flow worth 72% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

Although Saipem's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €532.0m. And we liked the look of last year's 35% year-on-year EBIT growth. So we are not troubled with Saipem's debt use. 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. For example, we've discovered 1 warning sign for Saipem that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.