Hugo Boss (ETR:BOSS) Is Carrying A Fair Bit 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.' 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. We can see that Hugo Boss AG (ETR:BOSS) does use debt in its business. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Hugo Boss

What Is Hugo Boss's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Hugo Boss had €358.0m of debt, an increase on €337.0m, over one year. However, it does have €137.0m in cash offsetting this, leading to net debt of about €221.0m.

A Look At Hugo Boss' Liabilities

Zooming in on the latest balance sheet data, we can see that Hugo Boss had liabilities of €831.0m due within 12 months and liabilities of €1.01b due beyond that. Offsetting this, it had €137.0m in cash and €220.0m in receivables that were due within 12 months. So its liabilities total €1.49b more than the combination of its cash and short-term receivables.

Hugo Boss has a market capitalization of €2.94b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Hugo Boss can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Hugo Boss had a loss before interest and tax, and actually shrunk its revenue by 32%, to €1.9b. To be frank that doesn't bode well.

Caveat Emptor

Not only did Hugo Boss's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost €111m at the EBIT level. 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. We would feel better if it turned its trailing twelve month loss of €210m into a profit. So in short it's a really risky stock. 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. For example - Hugo Boss has 2 warning signs we think 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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