Does 4SC (FRA:VSC) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that 4SC AG (FRA:VSC) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for 4SC

What Is 4SC's Debt?

The image below, which you can click on for greater detail, shows that at December 2023 4SC had debt of €3.10m, up from none in one year. But on the other hand it also has €8.32m in cash, leading to a €5.22m net cash position.

A Look At 4SC's Liabilities

Zooming in on the latest balance sheet data, we can see that 4SC had liabilities of €1.25m due within 12 months and liabilities of €3.10m due beyond that. Offsetting this, it had €8.32m in cash and €161.0k in receivables that were due within 12 months. So it actually has €4.13m more liquid assets than total liabilities.

This surplus suggests that 4SC has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, 4SC boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is 4SC'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.

Since 4SC doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

So How Risky Is 4SC?

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 4SC had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €9.6m of cash and made a loss of €8.2m. Given it only has net cash of €5.22m, 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. To that end, you should learn about the 4 warning signs we've spotted with 4SC (including 3 which make us uncomfortable) .

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. 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.