Arla Plast (STO:ARPL) Could Easily Take On More 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.' 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. We note that Arla Plast AB (STO:ARPL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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 examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Arla Plast Carry?

You can click the graphic below for the historical numbers, but it shows that Arla Plast had kr88.3m of debt in June 2025, down from kr152.0m, one year before. But it also has kr153.1m in cash to offset that, meaning it has kr64.8m net cash.

How Healthy Is Arla Plast's Balance Sheet?

The latest balance sheet data shows that Arla Plast had liabilities of kr284.1m due within a year, and liabilities of kr79.8m falling due after that. Offsetting these obligations, it had cash of kr153.1m as well as receivables valued at kr260.8m due within 12 months. So it can boast kr50.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Arla Plast could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Arla Plast boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Arla Plast

Also good is that Arla Plast grew its EBIT at 17% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Arla Plast will need earnings to service that debt. 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. Arla Plast 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. Happily for any shareholders, Arla Plast actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Arla Plast has net cash of kr64.8m, as well as more liquid assets than liabilities. The cherry on top was that in converted 163% of that EBIT to free cash flow, bringing in kr159m. So is Arla Plast's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Arla Plast that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.