Is Zealand Pharma (CPH:ZEAL) Weighed On By Its Debt Load?

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 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. As with many other companies Zealand Pharma A/S (CPH:ZEAL) makes use of debt. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

What Is Zealand Pharma's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Zealand Pharma had kr.289.8m of debt, an increase on kr.272.6m, over one year. But it also has kr.8.54b in cash to offset that, meaning it has kr.8.25b net cash.

How Strong Is Zealand Pharma's Balance Sheet?

The latest balance sheet data shows that Zealand Pharma had liabilities of kr.356.9m due within a year, and liabilities of kr.456.9m falling due after that. Offsetting these obligations, it had cash of kr.8.54b as well as receivables valued at kr.159.9m due within 12 months. So it can boast kr.7.89b more liquid assets than total liabilities.

This surplus suggests that Zealand Pharma is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Zealand Pharma has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Zealand Pharma'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.

View our latest analysis for Zealand Pharma

In the last year Zealand Pharma had a loss before interest and tax, and actually shrunk its revenue by 84%, to kr.56m. That makes us nervous, to say the least.

So How Risky Is Zealand Pharma?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Zealand Pharma had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through kr.1.2b of cash and made a loss of kr.1.2b. But the saving grace is the kr.8.25b on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Case in point: We've spotted 2 warning signs for Zealand Pharma you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.