We Think S.C. Prebet Aiud (BVB:PREB) Can Stay On Top Of Its Debt

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. As with many other companies S.C. Prebet Aiud S.A. (BVB:PREB) makes use of debt. But the real question is whether this debt is making the company risky.

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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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is S.C. Prebet Aiud's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 S.C. Prebet Aiud had RON126.7m of debt, an increase on RON103.5m, over one year. However, it does have RON12.7m in cash offsetting this, leading to net debt of about RON114.1m.

A Look At S.C. Prebet Aiud's Liabilities

According to the last reported balance sheet, S.C. Prebet Aiud had liabilities of RON83.7m due within 12 months, and liabilities of RON50.3m due beyond 12 months. Offsetting these obligations, it had cash of RON12.7m as well as receivables valued at RON33.7m due within 12 months. So its liabilities total RON87.6m more than the combination of its cash and short-term receivables.

S.C. Prebet Aiud has a market capitalization of RON239.4m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution.

See our latest analysis for S.C. Prebet Aiud

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.

S.C. Prebet Aiud has a rather high debt to EBITDA ratio of 9.6 which suggests a meaningful debt load. However, its interest coverage of 6.4 is reasonably strong, which is a good sign. Pleasingly, S.C. Prebet Aiud is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 226% gain in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is S.C. Prebet Aiud's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Happily for any shareholders, S.C. Prebet Aiud actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our View

Happily, S.C. Prebet Aiud's impressive conversion of EBIT to free cash flow implies it has the upper hand on its debt. But we must concede we find its net debt to EBITDA has the opposite effect. Looking at all the aforementioned factors together, it strikes us that S.C. Prebet Aiud can handle its debt fairly comfortably. Of course, while this leverage can enhance returns on equity, it does bring more risk, so it's worth keeping an eye on this one. 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. To that end, you should learn about the 5 warning signs we've spotted with S.C. Prebet Aiud (including 4 which are concerning) .

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.