Does Agfa-Gevaert (EBR:AGFB) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Agfa-Gevaert NV (EBR:AGFB) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Agfa-Gevaert

What Is Agfa-Gevaert's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 Agfa-Gevaert had €5.00m of debt, an increase on €3.00m, over one year. But on the other hand it also has €139.0m in cash, leading to a €134.0m net cash position.

A Look At Agfa-Gevaert's Liabilities

According to the last reported balance sheet, Agfa-Gevaert had liabilities of €585.0m due within 12 months, and liabilities of €610.0m due beyond 12 months. On the other hand, it had cash of €139.0m and €516.0m worth of receivables due within a year. So its liabilities total €540.0m more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's €400.2m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. Given that Agfa-Gevaert has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Agfa-Gevaert can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Agfa-Gevaert wasn't profitable at an EBIT level, but managed to grow its revenue by 5.5%, to €1.9b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Agfa-Gevaert?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Agfa-Gevaert had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €133m and booked a €221m accounting loss. With only €134.0m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example, we've discovered 1 warning sign for Agfa-Gevaert that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.