Is Bragg Gaming Group (TSE:BRAG) Using Debt Sensibly?

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.' 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 Bragg Gaming Group Inc. (TSE:BRAG) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Bragg Gaming Group

What Is Bragg Gaming Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Bragg Gaming Group had €4.53m of debt, an increase on €112.0k, over one year. However, its balance sheet shows it holds €10.8m in cash, so it actually has €6.30m net cash.

How Strong Is Bragg Gaming Group's Balance Sheet?

The latest balance sheet data shows that Bragg Gaming Group had liabilities of €23.2m due within a year, and liabilities of €7.78m falling due after that. Offsetting this, it had €10.8m in cash and €16.5m in receivables that were due within 12 months. So its liabilities total €3.65m more than the combination of its cash and short-term receivables.

Since publicly traded Bragg Gaming Group shares are worth a total of €118.6m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Bragg Gaming Group also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Bragg Gaming Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Bragg Gaming Group reported revenue of €92m, which is a gain of 34%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Bragg Gaming Group?

While Bragg Gaming Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €4.8m. 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. The good news for Bragg Gaming Group shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Bragg Gaming Group you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.