Would Mobotix (ETR:MBQ) Be Better Off With Less 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, Mobotix AG (ETR:MBQ) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Mobotix

What Is Mobotix's Net Debt?

As you can see below, at the end of March 2022, Mobotix had €40.8m of debt, up from €21.8m a year ago. Click the image for more detail. On the flip side, it has €1.50m in cash leading to net debt of about €39.3m.

How Healthy Is Mobotix's Balance Sheet?

We can see from the most recent balance sheet that Mobotix had liabilities of €31.3m falling due within a year, and liabilities of €22.1m due beyond that. On the other hand, it had cash of €1.50m and €20.6m worth of receivables due within a year. So its liabilities total €31.3m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €45.8m, so it does suggest shareholders should keep an eye on Mobotix's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Mobotix 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 Mobotix had a loss before interest and tax, and actually shrunk its revenue by 6.9%, to €65m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Mobotix produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €3.1m 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. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of €3.2m. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Mobotix .

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.