We Think Keyware Technologies (EBR:KEYW) Has A Fair Chunk Of Debt

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. Importantly, Keyware Technologies NV (EBR:KEYW) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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. 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.

Check out our latest analysis for Keyware Technologies

How Much Debt Does Keyware Technologies Carry?

As you can see below, Keyware Technologies had €1.56m of debt at June 2021, down from €2.84m a year prior. However, it does have €1.47m in cash offsetting this, leading to net debt of about €86.0k.

How Strong Is Keyware Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Keyware Technologies had liabilities of €4.68m due within 12 months and liabilities of €4.42m due beyond that. Offsetting these obligations, it had cash of €1.47m as well as receivables valued at €9.92m due within 12 months. So it actually has €2.29m more liquid assets than total liabilities.

This short term liquidity is a sign that Keyware Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Carrying virtually no net debt, Keyware Technologies has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Keyware Technologies's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Keyware Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 6.2%, to €16m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Keyware Technologies had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at €131k. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. And on top of that, it booked free cash flow of €353k and profit of €226k over the last year. So it seems too risky for our taste. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Keyware Technologies has 3 warning signs (and 1 which can't be ignored) we think you should know about.

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.

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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