Is A.P.N. Promise (WSE:PRO) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies A.P.N. Promise S.A. (WSE:PRO) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 A.P.N. Promise's Net Debt?

You can click the graphic below for the historical numbers, but it shows that A.P.N. Promise had zł24.7m of debt in March 2025, down from zł29.8m, one year before. However, because it has a cash reserve of zł16.2m, its net debt is less, at about zł8.47m.

A Look At A.P.N. Promise's Liabilities

According to the last reported balance sheet, A.P.N. Promise had liabilities of zł336.5m due within 12 months, and liabilities of zł426.8k due beyond 12 months. On the other hand, it had cash of zł16.2m and zł332.3m worth of receivables due within a year. So it actually has zł11.6m more liquid assets than total liabilities.

This surplus suggests that A.P.N. Promise has a conservative balance sheet, and could probably eliminate its debt without much difficulty.

See our latest analysis for A.P.N. Promise

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

A.P.N. Promise's net debt is only 0.73 times its EBITDA. And its EBIT easily covers its interest expense, being 34.7 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. On the other hand, A.P.N. Promise saw its EBIT drop by 3.8% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is A.P.N. Promise's earnings that will influence how the balance sheet holds up in the future. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, A.P.N. Promise produced sturdy free cash flow equating to 77% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Our View

The good news is that A.P.N. Promise's demonstrated ability to cover its interest expense with its EBIT delights us like a fluffy puppy does a toddler. But, on a more sombre note, we are a little concerned by its EBIT growth rate. Looking at the bigger picture, we think A.P.N. Promise's use of debt seems quite reasonable and we're not concerned about it. While debt does bring risk, when used wisely it can also bring a higher return on equity. 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. Be aware that A.P.N. Promise is showing 2 warning signs in our investment analysis , you should know about...

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.