Is Compañía Pesquera Camanchaca (SNSE:CAMANCHACA) Weighed On By Its Debt Load?

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. As with many other companies Compañía Pesquera Camanchaca S.A. (SNSE:CAMANCHACA) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Compañía Pesquera Camanchaca

What Is Compañía Pesquera Camanchaca's Debt?

As you can see below, at the end of June 2021, Compañía Pesquera Camanchaca had US$202.6m of debt, up from US$172.0m a year ago. Click the image for more detail. However, it does have US$44.3m in cash offsetting this, leading to net debt of about US$158.3m.

How Healthy Is Compañía Pesquera Camanchaca's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Compañía Pesquera Camanchaca had liabilities of US$176.1m due within 12 months and liabilities of US$161.2m due beyond that. Offsetting this, it had US$44.3m in cash and US$109.4m in receivables that were due within 12 months. So its liabilities total US$183.6m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of US$184.6m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Compañía Pesquera Camanchaca's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Compañía Pesquera Camanchaca made a loss at the EBIT level, and saw its revenue drop to US$556m, which is a fall of 14%. We would much prefer see growth.

Caveat Emptor

While Compañía Pesquera Camanchaca's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$42m. 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. Another cause for caution is that is bled US$44m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Compañía Pesquera Camanchaca (including 2 which are potentially serious) .

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.

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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