Is EQS Group (ETR:EQS) A Risky Investment?

Warren Buffett famously said, '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. We note that EQS Group AG (ETR:EQS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. 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 EQS Group

How Much Debt Does EQS Group Carry?

You can click the graphic below for the historical numbers, but it shows that EQS Group had €5.79m of debt in September 2022, down from €86.4m, one year before. But on the other hand it also has €8.16m in cash, leading to a €2.37m net cash position.

A Look At EQS Group's Liabilities

According to the last reported balance sheet, EQS Group had liabilities of €49.6m due within 12 months, and liabilities of €20.5m due beyond 12 months. On the other hand, it had cash of €8.16m and €7.14m worth of receivables due within a year. So it has liabilities totalling €54.8m more than its cash and near-term receivables, combined.

This deficit isn't so bad because EQS Group is worth €234.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, EQS Group boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine EQS Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, EQS Group reported revenue of €62m, which is a gain of 31%, 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.

So How Risky Is EQS Group?

While EQS Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €1.2m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. The good news for EQS Group shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for EQS Group that you should be aware of before investing here.

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.