Auditors Are Concerned About paragon GmbH KGaA (ETR:PGN)

Unfortunately for shareholders, when paragon GmbH & Co. KGaA (ETR:PGN) reported results for the period to March 2021, its auditors, Baker Tilly, expressed uncertainty about whether it can continue as a going concern. This means that, based on the financial results to that date, the company arguably should raise capital, or otherwise strengthen the balance sheet, as soon as possible.

Since the company probably needs cash fairly quickly, it may be in a position where it has to accept whatever terms it can get. So current risks on the balance sheet could have a big impact on how shareholders fare from here. The big consideration is whether it can repay its debt, since in the worst case scenario, creditors could force the company to bankruptcy.

View our latest analysis for paragon GmbH KGaA

What Is paragon GmbH KGaA's Debt?

As you can see below, paragon GmbH KGaA had €115.6m of debt at March 2021, down from €123.0m a year prior. However, it does have €6.02m in cash offsetting this, leading to net debt of about €109.6m.

How Healthy Is paragon GmbH KGaA's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that paragon GmbH KGaA had liabilities of €94.7m due within 12 months and liabilities of €90.2m due beyond that. On the other hand, it had cash of €6.02m and €11.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €167.8m.

This deficit casts a shadow over the €45.7m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, paragon GmbH KGaA would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since paragon GmbH KGaA will need earnings to service that debt. 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.

Over 12 months, paragon GmbH KGaA made a loss at the EBIT level, and saw its revenue drop to €166m, which is a fall of 21%. That makes us nervous, to say the least.

Caveat Emptor

While paragon GmbH KGaA's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable €35m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it lost €25m in just last twelve months, and it doesn't have much by way of liquid assets. So while it's not wise to assume the company will fail, we do think it's risky. We're too cautious to want to invest in a company after an auditor has expressed doubts about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for paragon GmbH KGaA (1 can't be ignored) you should be aware of.

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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