Is SBF (FRA:CY1K) A Risky Investment?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that SBF AG (FRA:CY1K) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for SBF

How Much Debt Does SBF Carry?

As you can see below, SBF had €6.08m of debt at December 2023, down from €7.46m a year prior. But it also has €10.8m in cash to offset that, meaning it has €4.72m net cash.

How Strong Is SBF's Balance Sheet?

We can see from the most recent balance sheet that SBF had liabilities of €5.33m falling due within a year, and liabilities of €6.53m due beyond that. Offsetting this, it had €10.8m in cash and €816.7k in receivables that were due within 12 months. So it has liabilities totalling €242.6k more than its cash and near-term receivables, combined.

This state of affairs indicates that SBF's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €31.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, SBF also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine SBF's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, SBF made a loss at the EBIT level, and saw its revenue drop to €34m, which is a fall of 2.5%. That's not what we would hope to see.

So How Risky Is SBF?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year SBF had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €1.3m and booked a €3.4m accounting loss. But the saving grace is the €4.72m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for SBF that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com