Is cyan (ETR:CYR) Using Too Much Debt?

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.' 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, cyan AG (ETR:CYR) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for cyan

How Much Debt Does cyan Carry?

You can click the graphic below for the historical numbers, but it shows that cyan had €2.45m of debt in December 2021, down from €3.66m, one year before. However, its balance sheet shows it holds €8.50m in cash, so it actually has €6.05m net cash.

How Healthy Is cyan's Balance Sheet?

We can see from the most recent balance sheet that cyan had liabilities of €10.6m falling due within a year, and liabilities of €12.4m due beyond that. Offsetting this, it had €8.50m in cash and €8.90m in receivables that were due within 12 months. So it has liabilities totalling €5.57m more than its cash and near-term receivables, combined.

Of course, cyan has a market capitalization of €38.1m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, cyan 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 cyan'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 cyan had a loss before interest and tax, and actually shrunk its revenue by 46%, to €12m. That makes us nervous, to say the least.

So How Risky Is cyan?

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 cyan had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €9.8m of cash and made a loss of €14m. Given it only has net cash of €6.05m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 4 warning signs for cyan (of which 2 make us uncomfortable!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.