Does DO & CO (VIE:DOC) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that DO & CO Aktiengesellschaft (VIE:DOC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for DO & CO

How Much Debt Does DO & CO Carry?

You can click the graphic below for the historical numbers, but it shows that DO & CO had €377.7m of debt in March 2021, down from €453.8m, one year before. However, it does have €232.0m in cash offsetting this, leading to net debt of about €145.6m.

A Look At DO & CO's Liabilities

According to the last reported balance sheet, DO & CO had liabilities of €179.6m due within 12 months, and liabilities of €518.8m due beyond 12 months. Offsetting this, it had €232.0m in cash and €72.6m in receivables that were due within 12 months. So it has liabilities totalling €393.8m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of €652.8m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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 DO & CO 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.

Over 12 months, DO & CO made a loss at the EBIT level, and saw its revenue drop to €253m, which is a fall of 73%. That makes us nervous, to say the least.

Caveat Emptor

While DO & CO's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €8.4m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €8.6m of cash over the last year. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that DO & CO is showing 1 warning sign in our investment analysis , you should know about...

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.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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