Waberer's International Nyrt (BST:3WB) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Waberer's International Nyrt. (BST:3WB) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 Waberer's International Nyrt

What Is Waberer's International Nyrt's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Waberer's International Nyrt had €36.6m of debt in September 2020, down from €45.3m, one year before. But on the other hand it also has €44.9m in cash, leading to a €8.30m net cash position.

How Healthy Is Waberer's International Nyrt's Balance Sheet?

According to the last reported balance sheet, Waberer's International Nyrt had liabilities of €209.2m due within 12 months, and liabilities of €223.5m due beyond 12 months. Offsetting these obligations, it had cash of €44.9m as well as receivables valued at €90.1m due within 12 months. So it has liabilities totalling €297.7m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the €77.6m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Waberer's International Nyrt would probably need a major re-capitalization if its creditors were to demand repayment. Waberer's International Nyrt boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Waberer's International Nyrt 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.

Over 12 months, Waberer's International Nyrt made a loss at the EBIT level, and saw its revenue drop to €598m, which is a fall of 16%. We would much prefer see growth.

So How Risky Is Waberer's International Nyrt?

Although Waberer's International Nyrt had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of €47m. 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. Given the lack of transparency around future revenue (and cashflow), we're nervous about this one, until it makes its first big sales. To us, it is a high risk play. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Waberer's International Nyrt you should know about.

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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