Health Check: How Prudently Does lastminute.com (VTX:LMN) Use Debt?

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 lastminute.com N.V. (VTX:LMN) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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.

See our latest analysis for lastminute.com

What Is lastminute.com's Debt?

As you can see below, lastminute.com had €91.0m 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 €155.4m in cash offsetting this, leading to net cash of €64.4m.

A Look At lastminute.com's Liabilities

Zooming in on the latest balance sheet data, we can see that lastminute.com had liabilities of €344.7m due within 12 months and liabilities of €74.8m due beyond that. Offsetting this, it had €155.4m in cash and €71.4m in receivables that were due within 12 months. So it has liabilities totalling €192.6m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since lastminute.com has a market capitalization of €360.2m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, lastminute.com boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine lastminute.com'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.

Over 12 months, lastminute.com made a loss at the EBIT level, and saw its revenue drop to €91m, which is a fall of 63%. That makes us nervous, to say the least.

So How Risky Is lastminute.com?

Although lastminute.com had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of €34m. 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. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. For riskier companies like lastminute.com I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

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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.
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