We Think Brouwerij Handelsmaatschappij (EBR:COBH) Has A Fair Chunk Of Debt

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 Brouwerij Handelsmaatschappij NV (EBR:COBH) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Brouwerij Handelsmaatschappij

What Is Brouwerij Handelsmaatschappij's Debt?

As you can see below, at the end of December 2023, Brouwerij Handelsmaatschappij had €19.6m of debt, up from €12.9m a year ago. Click the image for more detail. However, it also had €6.54m in cash, and so its net debt is €13.0m.

How Healthy Is Brouwerij Handelsmaatschappij's Balance Sheet?

According to the last reported balance sheet, Brouwerij Handelsmaatschappij had liabilities of €46.2m due within 12 months, and liabilities of €19.9m due beyond 12 months. On the other hand, it had cash of €6.54m and €24.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €34.9m.

This deficit isn't so bad because Brouwerij Handelsmaatschappij is worth €123.0m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Brouwerij Handelsmaatschappij will need earnings to service that debt. 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 reported revenue of €119m, which is a gain of 5.9%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Brouwerij Handelsmaatschappij had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €4.4m 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. For example, we would not want to see a repeat of last year's loss of €4.4m. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Brouwerij Handelsmaatschappij that you should be aware of before investing here.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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