Does Compagnie Financière de Neufcour (EBR:MLNEU) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 note that Compagnie Financière de Neufcour S.A. (EBR:MLNEU) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Compagnie Financière de Neufcour's Net Debt?

As you can see below, Compagnie Financière de Neufcour had €2.30m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. And it doesn't have much cash, so its net debt is about the same.

How Strong Is Compagnie Financière de Neufcour's Balance Sheet?

According to the last reported balance sheet, Compagnie Financière de Neufcour had liabilities of €2.71m due within 12 months, and liabilities of €687.9k due beyond 12 months. Offsetting this, it had €27.8k in cash and €4.66m in receivables that were due within 12 months. So it can boast €1.29m more liquid assets than total liabilities.

This excess liquidity is a great indication that Compagnie Financière de Neufcour's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. 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 Compagnie Financière de Neufcour 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.

See our latest analysis for Compagnie Financière de Neufcour

It seems likely shareholders hope that Compagnie Financière de Neufcour can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

Caveat Emptor

Importantly, Compagnie Financière de Neufcour had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at €350k. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd be more likely to spend time trying to understand the stock if the company made a profit. So it seems too risky for our taste. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Compagnie Financière de Neufcour that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.