Koninklijke Heijmans (AMS:HEIJM) Seems To Use Debt Rather Sparingly

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Koninklijke Heijmans N.V. (AMS:HEIJM) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Koninklijke Heijmans's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Koninklijke Heijmans had €10.0m of debt in June 2025, down from €41.0m, one year before. However, its balance sheet shows it holds €78.0m in cash, so it actually has €68.0m net cash.

How Healthy Is Koninklijke Heijmans' Balance Sheet?

The latest balance sheet data shows that Koninklijke Heijmans had liabilities of €820.0m due within a year, and liabilities of €176.0m falling due after that. Offsetting this, it had €78.0m in cash and €411.0m in receivables that were due within 12 months. So its liabilities total €507.0m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Koninklijke Heijmans has a market capitalization of €1.59b, 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, Koninklijke Heijmans also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Koninklijke Heijmans

In addition to that, we're happy to report that Koninklijke Heijmans has boosted its EBIT by 55%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Koninklijke Heijmans can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Koninklijke Heijmans 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. Happily for any shareholders, Koninklijke Heijmans actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Koninklijke Heijmans's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €68.0m. The cherry on top was that in converted 134% of that EBIT to free cash flow, bringing in €199m. So we don't think Koninklijke Heijmans's use of debt is risky. 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 instance, we've identified 1 warning sign for Koninklijke Heijmans that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.