Health Check: How Prudently Does TTL Beteiligungs- und Grundbesitz-AG (ETR:TTO) Use 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. Importantly, TTL Beteiligungs- und Grundbesitz-AG (ETR:TTO) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for TTL Beteiligungs- und Grundbesitz-AG

What Is TTL Beteiligungs- und Grundbesitz-AG's Net Debt?

The image below, which you can click on for greater detail, shows that TTL Beteiligungs- und Grundbesitz-AG had debt of €72.9m at the end of December 2022, a reduction from €108.6m over a year. However, it also had €3.08m in cash, and so its net debt is €69.8m.

A Look At TTL Beteiligungs- und Grundbesitz-AG's Liabilities

Zooming in on the latest balance sheet data, we can see that TTL Beteiligungs- und Grundbesitz-AG had liabilities of €1.45m due within 12 months and liabilities of €72.9m due beyond that. Offsetting these obligations, it had cash of €3.08m as well as receivables valued at €21.9m due within 12 months. So it has liabilities totalling €49.4m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of €60.0m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is TTL Beteiligungs- und Grundbesitz-AG'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.

Over 12 months, TTL Beteiligungs- und Grundbesitz-AG reported revenue of €2.4m, which is a gain of 47%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate TTL Beteiligungs- und Grundbesitz-AG's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at €307k. 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 €889k into a profit. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 5 warning signs we've spotted with TTL Beteiligungs- und Grundbesitz-AG (including 3 which can't be ignored) .

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.