We Think Dampskibsselskabet Norden (CPH:DNORD) Is Taking Some Risk With 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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Dampskibsselskabet Norden A/S (CPH:DNORD) does carry debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Dampskibsselskabet Norden Carry?

The chart below, which you can click on for greater detail, shows that Dampskibsselskabet Norden had US$200.6m in debt in September 2025; about the same as the year before. But on the other hand it also has US$403.9m in cash, leading to a US$203.3m net cash position.

A Look At Dampskibsselskabet Norden's Liabilities

According to the last reported balance sheet, Dampskibsselskabet Norden had liabilities of US$634.5m due within 12 months, and liabilities of US$409.6m due beyond 12 months. Offsetting these obligations, it had cash of US$403.9m as well as receivables valued at US$435.7m due within 12 months. So it has liabilities totalling US$204.5m more than its cash and near-term receivables, combined.

Since publicly traded Dampskibsselskabet Norden shares are worth a total of US$1.24b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Dampskibsselskabet Norden boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Dampskibsselskabet Norden

Importantly, Dampskibsselskabet Norden's EBIT fell a jaw-dropping 36% in the last twelve months. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Dampskibsselskabet Norden'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Dampskibsselskabet Norden 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, Dampskibsselskabet Norden produced sturdy free cash flow equating to 56% 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 Dampskibsselskabet Norden does have more liabilities than liquid assets, it also has net cash of US$203.3m. So although we see some areas for improvement, we're not too worried about Dampskibsselskabet Norden's balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Dampskibsselskabet Norden is showing 2 warning signs in our investment analysis , you should know about...

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.