Does Alfio Bardolla Training Group (BIT:ABTG) Have A Healthy Balance Sheet?

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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that ‘Volatility is far from synonymous with risk.’ 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. As with many other companies. Alfio Bardolla Training Group S.p.A. (BIT:ABTG) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company’s debt levels is to consider its cash and debt together.

See our latest analysis for Alfio Bardolla Training Group

How Much Debt Does Alfio Bardolla Training Group Carry?

The image below, which you can click on for greater detail, shows that at December 2018 Alfio Bardolla Training Group had debt of €858.3k, up from €467.4k in one year. However, it also had €368.1k in cash, and so its net debt is €490.2k.

BIT:ABTG Historical Debt, July 18th 2019
BIT:ABTG Historical Debt, July 18th 2019

How Healthy Is Alfio Bardolla Training Group’s Balance Sheet?

According to the last reported balance sheet, Alfio Bardolla Training Group had liabilities of €3.67m due within 12 months, and liabilities of €781.2k due beyond 12 months. On the other hand, it had cash of €368.1k and €1.39m worth of receivables due within a year. So its liabilities total €2.70m more than the combination of its cash and short-term receivables.

This deficit isn’t so bad because Alfio Bardolla Training Group is worth €9.93m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Since Alfio Bardolla Training Group does have net debt, we think it is worthwhile for shareholders to keep an eye on the balance sheet, over time. There’s no doubt that we learn most about debt from the balance sheet. But it is Alfio Bardolla Training Group’s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it’s definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Alfio Bardolla Training Group managed to grow its revenue by 2.3%, to €9.7m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Alfio Bardolla Training Group produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €883k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €1.6m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. For riskier companies like Alfio Bardolla Training Group I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.