Does LUDWIG BECK am Rathauseck - Textilhaus Feldmeier (ETR:ECK) Have A Healthy Balance Sheet?

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.' 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. As with many other companies LUDWIG BECK am Rathauseck - Textilhaus Feldmeier AG (ETR:ECK) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for LUDWIG BECK am Rathauseck - Textilhaus Feldmeier

What Is LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's Net Debt?

The image below, which you can click on for greater detail, shows that LUDWIG BECK am Rathauseck - Textilhaus Feldmeier had debt of €55.2m at the end of March 2021, a reduction from €122.3m over a year. Net debt is about the same, since the it doesn't have much cash.

How Healthy Is LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's Balance Sheet?

According to the last reported balance sheet, LUDWIG BECK am Rathauseck - Textilhaus Feldmeier had liabilities of €29.6m due within 12 months, and liabilities of €91.7m due beyond 12 months. Offsetting this, it had €400.0k in cash and €1.30m in receivables that were due within 12 months. So its liabilities total €119.6m more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of €117.5m, we think shareholders really should watch LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since LUDWIG BECK am Rathauseck - Textilhaus Feldmeier 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.

Over 12 months, LUDWIG BECK am Rathauseck - Textilhaus Feldmeier made a loss at the EBIT level, and saw its revenue drop to €45m, which is a fall of 42%. To be frank that doesn't bode well.

Caveat Emptor

While LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €8.5m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of €5.9m over the last twelve months. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. 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 2 warning signs for LUDWIG BECK am Rathauseck - Textilhaus Feldmeier 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. 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.
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