Is Barco (EBR:BAR) A Risky Investment?

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. We can see that Barco NV (EBR:BAR) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Barco

What Is Barco's Debt?

As you can see below, Barco had €47.5m of debt, at June 2021, which is about the same as the year before. You can click the chart for greater detail. However, it does have €310.1m in cash offsetting this, leading to net cash of €262.6m.

How Strong Is Barco's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Barco had liabilities of €211.1m due within 12 months and liabilities of €130.0m due beyond that. On the other hand, it had cash of €310.1m and €158.2m worth of receivables due within a year. So it actually has €127.1m more liquid assets than total liabilities.

This surplus suggests that Barco has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Barco has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Barco's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Barco had a loss before interest and tax, and actually shrunk its revenue by 27%, to €729m. That makes us nervous, to say the least.

So How Risky Is Barco?

Although Barco had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of €53m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. Case in point: We've spotted 2 warning signs for Barco you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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