NAY returned to an operating profit in 2025 that still does not pay its interest bill

A profit that falls short of the interest

NAY a.s., a Slovak retailer of consumer electronics and household appliances, earned an operating profit of EUR 496k in the 2025 calendar year. Over the same year it paid EUR 546k in interest. Operating profit covered interest only 0.91×. The shops, the warehouse and the head office produced a surplus, and the lenders took all of it and a little more.

That is the tension. On the operating line 2025 looks like a turnaround: a year earlier NAY reported an operating loss of EUR 803k. Yet the company still closed the year with a net loss of EUR 1.3m, smaller than the EUR 2.7m of 2024 but still a loss. The interest line is one reason it did not disappear.

The figures are for the joint-stock company on its own (a.s. is the Slovak form of a public limited company), under Slovak accounting standards, in euros. PricewaterhouseCoopers Slovensko gave the 2025 statements an unqualified opinion, and management states that the company continues as a going concern.

Scale sharpens the point. Revenue was EUR 412m in 2025, down 0.8% from EUR 416m. The operating margin on that turnover was 0.1%, against -0.2% a year earlier. In a business that thin, even a modest interest bill is enough to tip the year into a loss.

Thin margins leave no room for lenders

Electronics retail runs on volume. Customers compare prices on their phones in the aisle, suppliers set much of the margin, and rent, staff and logistics must be paid whether a television sells or not. A retailer like this can live on a very small operating margin, as long as its financing costs stay smaller still. When they do not, operating profit becomes a number that pleases on the income statement and pays nobody.

Interest cover, operating profit divided by interest expense, is the simplest test. Above one, the business pays its lenders from what it earns. Below one, the difference has to come from somewhere else: cash in the bank, new borrowing, money owed to suppliers or the owners' equity. A cover of 0.91× sits close to one, which makes it tempting to call it a near miss. I would not. A near miss repeated every year still eats capital.

Cover usually falls for one of a few reasons: borrowing grows faster than earnings, rates on floating loans reset higher, or operating profit shrinks while the debt stays. At NAY operating profit rose in 2025, so the last explanation does not fit. The accounts do not show whether the debt grew or the rates rose; the loan balances at both year ends would settle it.

There is a more generous reading. Depreciation and amortisation rose to EUR 6.7m from EUR 3.9m, which usually follows investment in stores, fittings or systems. Add it back and EBITDA, operating profit before depreciation, reached EUR 7.2m. That comfortably exceeds the interest bill. The catch is that depreciation is the cost of the premises and equipment the company needs to keep selling. A retailer that counts on EBITDA to cover interest is quietly assuming it will never have to replace what it bought.

Where the missing money came from

If operating profit did not pay the interest, the balance sheet hints at who helped. Two lines stand out.

The first is suppliers. Trade payables rose to EUR 115m at the end of 2025, while sales slipped. Measured against revenue, that is 102 days of sales, 21 days more than a year earlier. Longer terms are a normal tool in retail, and a large chain has the bargaining power to get them. The accounts do not say whether the extra days were agreed or simply taken. The difference matters: agreed terms are financing, late payment is a debt with a temper.

The second is equity. It fell by EUR 7.7m, from EUR 42.5m to EUR 34.9m. That drop is far larger than the year's net loss, so something besides the loss reduced it; the accounts do not explain what. Meanwhile total assets grew to EUR 169m, and the equity ratio, the share of assets financed by the owners, slid from 26.3% to 20.6%. A larger balance sheet resting on a thinner cushion of own capital is the shape a business takes when others finance more of it.

Put plainly: operating profit fell short of the interest bill, and the movements in payables and equity suggest that suppliers and the owners' capital absorbed the difference. The accounts point that way. They do not prove it line by line.

What to check in your own company

You can run NAY's test on your own accounts in a few minutes. Take operating profit for the last full year, before interest and tax, and divide it by interest expense from the same income statement. If the result is below one, your lenders are being paid from something other than your trading. Write down what that something is.

Then make the sum harder. Repeat it with the rates your bank could charge at the next reset, and with operating profit a fifth lower than last year. At NAY, a fifth less operating profit on the same interest bill would push a cover already below one further down, and every step down is paid from the balance sheet. If your own ratio slips below one in the harder version, you know how thin your safety margin really is.

Finally, open the payables ageing report, the list of supplier invoices sorted by how long they have been unpaid. Compare the actual days with the terms in your contracts. Then ask your finance team one question: how much cash would we need if every supplier insisted on standard terms next month? If the answer is uncomfortable, part of your financing is borrowed goodwill.

NAY did the hard part of 2025: it brought its trading back above zero on falling sales. It has not yet earned enough to pay for its own money. Until operating profit clears the interest line, the recovery is real on the shop floor and still pending on the balance sheet.