Is Bernard Loiseau (EPA:ALDBL) Weighed On By Its Debt Load?

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. We can see that Bernard Loiseau S.A. (EPA:ALDBL) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Bernard Loiseau

What Is Bernard Loiseau's Debt?

The image below, which you can click on for greater detail, shows that Bernard Loiseau had debt of €5.04m at the end of June 2019, a reduction from €5.77m over a year. However, it does have €1.14m in cash offsetting this, leading to net debt of about €3.90m.

How Strong Is Bernard Loiseau's Balance Sheet?

According to the last reported balance sheet, Bernard Loiseau had liabilities of €4.62m due within 12 months, and liabilities of €5.20m due beyond 12 months. Offsetting this, it had €1.14m in cash and €157.0k in receivables that were due within 12 months. So its liabilities total €8.53m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the €4.22m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Bernard Loiseau would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Bernard Loiseau 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.

In the last year Bernard Loiseau wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to €11m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Bernard Loiseau had negative earnings before interest and tax (EBIT), over the last year. Indeed, it lost €252k at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of €233k didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Bernard Loiseau (at least 2 which are significant) , and understanding them should be part of your investment process.

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.

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.

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