Spotify Technology (NYSE:SPOT) Could Easily Take On More 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 Spotify Technology S.A. (NYSE:SPOT) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Spotify Technology Carry?

The image below, which you can click on for greater detail, shows that at March 2025 Spotify Technology had debt of €1.65b, up from €1.27b in one year. But on the other hand it also has €6.96b in cash, leading to a €5.30b net cash position.

How Healthy Is Spotify Technology's Balance Sheet?

We can see from the most recent balance sheet that Spotify Technology had liabilities of €5.97b falling due within a year, and liabilities of €475.0m due beyond that. Offsetting these obligations, it had cash of €6.96b as well as receivables valued at €795.0m due within 12 months. So it can boast €1.31b more liquid assets than total liabilities.

Having regard to Spotify Technology's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €133.5b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Spotify Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Spotify Technology

Even more impressive was the fact that Spotify Technology grew its EBIT by 623% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Spotify Technology can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Spotify Technology 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. Over the last two years, Spotify Technology actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Spotify Technology has €5.30b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of €2.6b, being 172% of its EBIT. So we don't think Spotify Technology's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Spotify Technology's earnings per share history for free.

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.