Danish Aerospace (CPH:DAC) Is Making Moderate Use Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Danish Aerospace Company A/S (CPH:DAC) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Danish Aerospace Carry?

The image below, which you can click on for greater detail, shows that Danish Aerospace had debt of kr.13.1m at the end of June 2025, a reduction from kr.16.1m over a year. And it doesn't have much cash, so its net debt is about the same.

How Healthy Is Danish Aerospace's Balance Sheet?

We can see from the most recent balance sheet that Danish Aerospace had liabilities of kr.17.8m falling due within a year, and liabilities of kr.2.52m due beyond that. On the other hand, it had cash of kr.200.1k and kr.20.8m worth of receivables due within a year. So it actually has kr.596.0k more liquid assets than total liabilities.

This state of affairs indicates that Danish Aerospace's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the kr.88.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Danish Aerospace will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Danish Aerospace

In the last year Danish Aerospace had a loss before interest and tax, and actually shrunk its revenue by 36%, to kr.20m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Danish Aerospace's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at kr.1.4m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But a profit would do more to inspire us to research the business more closely. So it seems too risky for our taste. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for Danish Aerospace you should be aware of, and 1 of them is potentially serious.

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.