Here's Why Chocoladefabriken Lindt & Sprüngli (VTX:LISN) Can Manage Its Debt Responsibly

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. We note that Chocoladefabriken Lindt & Sprüngli AG (VTX:LISN) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Chocoladefabriken Lindt & Sprüngli Carry?

As you can see below, Chocoladefabriken Lindt & Sprüngli had CHF1.26b of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of CHF272.6m, its net debt is less, at about CHF987.5m.

How Strong Is Chocoladefabriken Lindt & Sprüngli's Balance Sheet?

According to the last reported balance sheet, Chocoladefabriken Lindt & Sprüngli had liabilities of CHF1.43b due within 12 months, and liabilities of CHF2.38b due beyond 12 months. Offsetting this, it had CHF272.6m in cash and CHF740.2m in receivables that were due within 12 months. So it has liabilities totalling CHF2.79b more than its cash and near-term receivables, combined.

Of course, Chocoladefabriken Lindt & Sprüngli has a titanic market capitalization of CHF26.8b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time.

View our latest analysis for Chocoladefabriken Lindt & Sprüngli

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Chocoladefabriken Lindt & Sprüngli's net debt is only 0.93 times its EBITDA. And its EBIT covers its interest expense a whopping 19.9 times over. So you could argue it is no more threatened by its debt than an elephant is by a mouse. While Chocoladefabriken Lindt & Sprüngli doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Chocoladefabriken Lindt & Sprüngli's ability to maintain a healthy balance sheet going forward. 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. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Chocoladefabriken Lindt & Sprüngli produced sturdy free cash flow equating to 53% 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.

Our View

Happily, Chocoladefabriken Lindt & Sprüngli's impressive interest cover implies it has the upper hand on its debt. And the good news does not stop there, as its net debt to EBITDA also supports that impression! All these things considered, it appears that Chocoladefabriken Lindt & Sprüngli can comfortably handle its current debt levels. On the plus side, this leverage can boost shareholder returns, but the potential downside is more risk of loss, so it's worth monitoring the balance sheet. Over time, share prices tend to follow earnings per share, so if you're interested in Chocoladefabriken Lindt & Sprüngli, you may well want to click here to check an interactive graph of its earnings per share history.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.