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

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Bragg Gaming Group Inc. (TSE:BRAG) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Bragg Gaming Group

How Much Debt Does Bragg Gaming Group Carry?

As you can see below, at the end of September 2024, Bragg Gaming Group had €6.50m of debt, up from €3.59m a year ago. Click the image for more detail. But it also has €11.6m in cash to offset that, meaning it has €5.14m net cash.

How Healthy Is Bragg Gaming Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bragg Gaming Group had liabilities of €29.7m due within 12 months and liabilities of €3.29m due beyond that. On the other hand, it had cash of €11.6m and €18.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €2.72m.

Of course, Bragg Gaming Group has a market capitalization of €96.0m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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. 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 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.

In the last year Bragg Gaming Group wasn't profitable at an EBIT level, but managed to grow its revenue by 4.6%, to €98m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Bragg Gaming Group?

Although Bragg Gaming Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of €19m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. Be aware that Bragg Gaming Group is showing 2 warning signs in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.