B+S Banksysteme (ETR:DTD2) Is Carrying A Fair Bit Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that B+S Banksysteme Aktiengesellschaft (ETR:DTD2) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for B+S Banksysteme

How Much Debt Does B+S Banksysteme Carry?

The chart below, which you can click on for greater detail, shows that B+S Banksysteme had €1.50m in debt in December 2020; about the same as the year before. However, it does have €285.0k in cash offsetting this, leading to net debt of about €1.22m.

How Strong Is B+S Banksysteme's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that B+S Banksysteme had liabilities of €8.12m due within 12 months and liabilities of €8.55m due beyond that. Offsetting this, it had €285.0k in cash and €4.74m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €11.6m.

While this might seem like a lot, it is not so bad since B+S Banksysteme has a market capitalization of €26.1m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if B+S Banksysteme can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year B+S Banksysteme wasn't profitable at an EBIT level, but managed to grow its revenue by 4.9%, to €9.9m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, B+S Banksysteme had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €153k at the EBIT level. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of €323k into a profit. So to be blunt we do think it is 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 be aware of the 1 warning sign we've spotted with B+S Banksysteme .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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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