Is bet-at-home.com (ETR:ACX) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, bet-at-home.com AG (ETR:ACX) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 bet-at-home.com

What Is bet-at-home.com's Net Debt?

As you can see below, bet-at-home.com had €1.73m of debt at December 2023, down from €1.88m a year prior. However, its balance sheet shows it holds €34.6m in cash, so it actually has €32.9m net cash.

How Healthy Is bet-at-home.com's Balance Sheet?

The latest balance sheet data shows that bet-at-home.com had liabilities of €20.1m due within a year, and liabilities of €9.28m falling due after that. Offsetting this, it had €34.6m in cash and €3.38m in receivables that were due within 12 months. So it can boast €8.69m more liquid assets than total liabilities.

This surplus strongly suggests that bet-at-home.com has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that bet-at-home.com has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is bet-at-home.com's earnings that will influence how the balance sheet holds up in the future. 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.

In the last year bet-at-home.com had a loss before interest and tax, and actually shrunk its revenue by 15%, to €45m. That's not what we would hope to see.

So How Risky Is bet-at-home.com?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months bet-at-home.com lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €226k of cash and made a loss of €1.9m. Given it only has net cash of €32.9m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 bet-at-home.com (1 is potentially serious) you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.