这四项指标显示 Telefonaktiebolaget LM Ericsson (STO:ERIC B) 在合理使用债务方面表现良好

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.' 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, Telefonaktiebolaget LM Ericsson (publ) (STO:ERIC B) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Telefonaktiebolaget LM Ericsson's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Telefonaktiebolaget LM Ericsson had kr35.5b of debt in March 2025, down from kr41.2b, one year before. However, its balance sheet shows it holds kr49.7b in cash, so it actually has kr14.2b net cash.

How Strong Is Telefonaktiebolaget LM Ericsson's Balance Sheet?

According to the last reported balance sheet, Telefonaktiebolaget LM Ericsson had liabilities of kr131.6b due within 12 months, and liabilities of kr61.5b due beyond 12 months. On the other hand, it had cash of kr49.7b and kr62.4b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr81.0b.

While this might seem like a lot, it is not so bad since Telefonaktiebolaget LM Ericsson has a huge market capitalization of kr269.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Telefonaktiebolaget LM Ericsson also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Telefonaktiebolaget LM Ericsson

The modesty of its debt load may become crucial for Telefonaktiebolaget LM Ericsson if management cannot prevent a repeat of the 24% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Telefonaktiebolaget LM Ericsson can strengthen its balance sheet over time. 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Telefonaktiebolaget LM Ericsson may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Telefonaktiebolaget LM Ericsson actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Telefonaktiebolaget LM Ericsson's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of kr14.2b. And it impressed us with free cash flow of kr42b, being 132% of its EBIT. So we are not troubled with Telefonaktiebolaget LM Ericsson's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Telefonaktiebolaget LM Ericsson that you should be aware of.

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.