Would Bergbahnen Engelberg-Trübsee-Titlis (VTX:TIBN) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Bergbahnen Engelberg-Trübsee-Titlis AG (VTX:TIBN) does use debt in its business. But should shareholders be worried about its use of debt?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Bergbahnen Engelberg-Trübsee-Titlis

How Much Debt Does Bergbahnen Engelberg-Trübsee-Titlis Carry?

As you can see below, at the end of October 2020, Bergbahnen Engelberg-Trübsee-Titlis had CHF17.6m of debt, up from none a year ago. Click the image for more detail. However, because it has a cash reserve of CHF10.7m, its net debt is less, at about CHF6.94m.

How Healthy Is Bergbahnen Engelberg-Trübsee-Titlis' Balance Sheet?

We can see from the most recent balance sheet that Bergbahnen Engelberg-Trübsee-Titlis had liabilities of CHF9.54m falling due within a year, and liabilities of CHF24.5m due beyond that. Offsetting these obligations, it had cash of CHF10.7m as well as receivables valued at CHF2.95m due within 12 months. So its liabilities total CHF20.4m more than the combination of its cash and short-term receivables.

Of course, Bergbahnen Engelberg-Trübsee-Titlis has a market capitalization of CHF160.2m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Bergbahnen Engelberg-Trübsee-Titlis can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Bergbahnen Engelberg-Trübsee-Titlis made a loss at the EBIT level, and saw its revenue drop to CHF36m, which is a fall of 53%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Bergbahnen Engelberg-Trübsee-Titlis's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CHF14m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CHF15m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. To that end, you should be aware of the 1 warning sign we've spotted with Bergbahnen Engelberg-Trübsee-Titlis .

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.

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