Warren Buffett famously declared, ‘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. We can see that NKT A/S (CPH:NKT) does apply debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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 receive really bad, the lconcludeers can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders becaapply lconcludeers force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that necessary capital to invest in growth at high rates of return. When we believe about a company’s apply of debt, we first see at cash and debt toreceiveher.
What Is NKT’s Net Debt?
You can click the graphic below for the historical numbers, but it displays that as of September 2025 NKT had €238.0m of debt, an increase on €223.0m, over one year. But on the other hand it also has €878.0m in cash, leading to a €640.0m net cash position.
How Healthy Is NKT’s Balance Sheet?
The latest balance sheet data displays that NKT had liabilities of €1.63b due within a year, and liabilities of €1.34b falling due after that. Offsetting these obligations, it had cash of €878.0m as well as receivables valued at €948.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.15b.
This deficit isn’t so bad becaapply NKT is worth €5.65b, and thus could probably raise enough capital to shore up its balance sheet, if the necessary arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, NKT boasts net cash, so it’s fair to declare it does not have a heavy debt load!
View our latest analysis for NKT
Also positive, NKT grew its EBIT by 20% in the last year, and that should build it clearer to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine NKT’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals believe, you might find this free report on analyst profit forecasts to be interesting.
Finally, a business necessarys free cash flow to pay off debt; accounting profits just don’t cut it. While NKT has net cash on its balance sheet, it’s still worth taking a see at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to assist us understand how quickly it is building (or eroding) that cash balance. During the last three years, NKT produced sturdy free cash flow equating to 55% of its EBIT, about what we’d expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing Up
Although NKT’s balance sheet isn’t particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €640.0m. And we liked the see of last year’s 20% year-on-year EBIT growth. So is NKT’s debt a risk? It doesn’t seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that conclude, you should be aware of the 1 warning sign we’ve spotted with NKT .
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 applying an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focapplyd 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.
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