Brouwerij Handelsmaatschappij (EBR:COBH) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Brouwerij Handelsmaatschappij NV (EBR:COBH) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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, 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.

View our latest analysis for Brouwerij Handelsmaatschappij

How Much Debt Does Brouwerij Handelsmaatschappij Carry?

As you can see below, at the end of December 2020, Brouwerij Handelsmaatschappij had €17.8m of debt, up from €7.83m a year ago. Click the image for more detail. On the flip side, it has €2.12m in cash leading to net debt of about €15.6m.

How Strong Is Brouwerij Handelsmaatschappij's Balance Sheet?

We can see from the most recent balance sheet that Brouwerij Handelsmaatschappij had liabilities of €32.7m falling due within a year, and liabilities of €21.9m due beyond that. On the other hand, it had cash of €2.12m and €20.9m worth of receivables due within a year. So it has liabilities totalling €31.6m more than its cash and near-term receivables, combined.

Since publicly traded Brouwerij Handelsmaatschappij shares are worth a total of €276.0m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Brouwerij Handelsmaatschappij's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Brouwerij Handelsmaatschappij made a loss at the EBIT level, and saw its revenue drop to €73m, which is a fall of 32%. To be frank that doesn't bode well.

Caveat Emptor

While Brouwerij Handelsmaatschappij'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 €10m. 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. We would feel better if it turned its trailing twelve month loss of €11m into a profit. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Brouwerij Handelsmaatschappij 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.

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