Is Admicasa Holding (BRN:ADMI) A Risky Investment?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Admicasa Holding AG (BRN:ADMI) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 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. 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.

See our latest analysis for Admicasa Holding

What Is Admicasa Holding's Net Debt?

As you can see below, Admicasa Holding had CHF4.00m of debt at December 2023, down from CHF5.13m a year prior. However, its balance sheet shows it holds CHF6.94m in cash, so it actually has CHF2.94m net cash.

A Look At Admicasa Holding's Liabilities

Zooming in on the latest balance sheet data, we can see that Admicasa Holding had liabilities of CHF6.39m due within 12 months and liabilities of CHF3.00m due beyond that. Offsetting these obligations, it had cash of CHF6.94m as well as receivables valued at CHF2.77m due within 12 months. So it actually has CHF323.4k more liquid assets than total liabilities.

This state of affairs indicates that Admicasa Holding's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CHF20.0m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Admicasa Holding boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Admicasa Holding's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

It seems likely shareholders hope that Admicasa Holding can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is Admicasa Holding?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Admicasa Holding had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of CHF1.5m and booked a CHF1.5m accounting loss. Given it only has net cash of CHF2.94m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. For example Admicasa Holding has 3 warning signs (and 2 which make us uncomfortable) we think 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.