TTL Beteiligungs- und Grundbesitz-AG (ETR:TTO) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, TTL Beteiligungs- und Grundbesitz-AG (ETR:TTO) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Debt?

As you can see below, TTL Beteiligungs- und Grundbesitz-AG had €73.2m of debt at June 2023, down from €109.9m a year prior. And it doesn't have much cash, so its net debt is about the same.

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

According to the last reported balance sheet, TTL Beteiligungs- und Grundbesitz-AG had liabilities of €1.41m due within 12 months, and liabilities of €73.2m due beyond 12 months. On the other hand, it had cash of €1.29m and €7.0k worth of receivables due within a year. So it has liabilities totalling €73.3m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the €38.1m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, TTL Beteiligungs- und Grundbesitz-AG would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since TTL Beteiligungs- und Grundbesitz-AG will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year TTL Beteiligungs- und Grundbesitz-AG wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to €2.2m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, TTL Beteiligungs- und Grundbesitz-AG still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €312k at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through €2.6m in negative free cash flow over the last year. So suffice it to say we consider the stock to be 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. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for TTL Beteiligungs- und Grundbesitz-AG (of which 3 are significant!) you should know about.

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.