PolyPeptide Group (VTX:PPGN) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that PolyPeptide Group AG (VTX:PPGN) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for PolyPeptide Group

What Is PolyPeptide Group's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2024 PolyPeptide Group had debt of €91.7m, up from €65.9m in one year. On the flip side, it has €48.5m in cash leading to net debt of about €43.2m.

How Strong Is PolyPeptide Group's Balance Sheet?

The latest balance sheet data shows that PolyPeptide Group had liabilities of €183.6m due within a year, and liabilities of €121.4m falling due after that. On the other hand, it had cash of €48.5m and €68.9m worth of receivables due within a year. So its liabilities total €187.6m more than the combination of its cash and short-term receivables.

Of course, PolyPeptide Group has a market capitalization of €1.04b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 PolyPeptide 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 PolyPeptide Group wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to €324m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months PolyPeptide Group produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €23m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of €29m into a profit. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with PolyPeptide Group .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.