We Think Compañía Pesquera Camanchaca (SNSE:CAMANCHACA) Has A Fair Chunk Of 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.' 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, Compañía Pesquera Camanchaca S.A. (SNSE:CAMANCHACA) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Compañía Pesquera Camanchaca

What Is Compañía Pesquera Camanchaca's Debt?

As you can see below, at the end of March 2021, Compañía Pesquera Camanchaca had US$202.8m of debt, up from US$167.9m a year ago. Click the image for more detail. However, it does have US$36.4m in cash offsetting this, leading to net debt of about US$166.4m.

How Strong Is Compañía Pesquera Camanchaca's Balance Sheet?

The latest balance sheet data shows that Compañía Pesquera Camanchaca had liabilities of US$176.1m due within a year, and liabilities of US$160.7m falling due after that. Offsetting this, it had US$36.4m in cash and US$115.6m in receivables that were due within 12 months. So its liabilities total US$184.8m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Compañía Pesquera Camanchaca has a market capitalization of US$320.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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$539m, which is a fall of 15%. We would much prefer see growth.

Caveat Emptor

Not only did Compañía Pesquera Camanchaca's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping US$46m. 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. However, it doesn't help that it burned through US$45m of cash over the last year. So in short it's a really risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Compañía Pesquera Camanchaca (of which 2 make us uncomfortable!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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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