UPM

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 ...

When we consider all the factors mentioned above, we do feel a bit cautious about UPM-Kymmene Oyj's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. UPM-Kymmene Oyj's conversion of EBIT to free cash flow was a real negative on this analysis, although the other factors we considered were considerably better. When analysing debt levels, the balance sheet is the obvious place to start. We can see from the most recent balance sheet that UPM-Kymmene Oyj had liabilities of €2.82b falling due within a year, and liabilities of €5.29b due beyond that. However, because it has a cash reserve of €938.0m, its net debt is less, at about €3.40b. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it. When we think about a company's use of debt, we first look at cash and debt together. Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So if you want to see what the professionals think, you might find Of course, plenty of companies use debt to fund growth, without any negative consequences.