Does Müller - Die lila Logistik (ETR:MLL) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Müller - Die lila Logistik SE (ETR:MLL) makes use of debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Müller - Die lila Logistik

What Is Müller - Die lila Logistik's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Müller - Die lila Logistik had €54.9m of debt, an increase on €5.32m, over one year. However, because it has a cash reserve of €9.53m, its net debt is less, at about €45.4m.

How Healthy Is Müller - Die lila Logistik's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Müller - Die lila Logistik had liabilities of €65.5m due within 12 months and liabilities of €118.0m due beyond that. On the other hand, it had cash of €9.53m and €32.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €141.3m.

The deficiency here weighs heavily on the €44.9m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Müller - Die lila Logistik would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Müller - Die lila Logistik's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Müller - Die lila Logistik reported revenue of €215m, which is a gain of 55%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Müller - Die lila Logistik still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable €12m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized €13m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Müller - Die lila Logistik .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.