Is S.N. Nuclearelectrica (BVB:SNN) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, S.N. Nuclearelectrica S.A. (BVB:SNN) 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 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 S.N. Nuclearelectrica's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 S.N. Nuclearelectrica had RON204.8m of debt, an increase on RON32.6m, over one year. However, it does have RON3.13b in cash offsetting this, leading to net cash of RON2.93b.

A Look At S.N. Nuclearelectrica's Liabilities

The latest balance sheet data shows that S.N. Nuclearelectrica had liabilities of RON1.22b due within a year, and liabilities of RON609.9m falling due after that. Offsetting this, it had RON3.13b in cash and RON239.4m in receivables that were due within 12 months. So it actually has RON1.54b more liquid assets than total liabilities.

This surplus suggests that S.N. Nuclearelectrica has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that S.N. Nuclearelectrica has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for S.N. Nuclearelectrica

But the bad news is that S.N. Nuclearelectrica has seen its EBIT plunge 15% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine S.N. Nuclearelectrica'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While S.N. Nuclearelectrica 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. During the last three years, S.N. Nuclearelectrica produced sturdy free cash flow equating to 58% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that S.N. Nuclearelectrica has net cash of RON2.93b, as well as more liquid assets than liabilities. So we don't have any problem with S.N. Nuclearelectrica's use of debt. 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 2 warning signs for S.N. Nuclearelectrica (1 is a bit unpleasant!) that you should be aware of before investing here.

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.