Is BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- (FRA:BLH) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- (FRA:BLH) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-

What Is BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s Debt?

As you can see below, BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- had €263.1m of debt at December 2021, down from €308.8m a year prior. However, it also had €33.8m in cash, and so its net debt is €229.3m.

How Strong Is BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s Balance Sheet?

According to the last reported balance sheet, BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- had liabilities of €319.4m due within 12 months, and liabilities of €742.5m due beyond 12 months. Offsetting this, it had €33.8m in cash and €213.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €814.4m.

The deficiency here weighs heavily on the €34.8m 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'd watch its balance sheet closely, without a doubt. At the end of the day, BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'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.

In the last year BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Importantly, BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €20m. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Sure, the company might have a nice story about how they are going on to a brighter future. But the fact is that it incinerated €566k of cash in the last twelve months, and has precious few liquid assets in comparison to its liabilities. So is this a high risk stock? We think so, and we'd avoid it. 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. To that end, you should learn about the 6 warning signs we've spotted with BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- (including 2 which shouldn't be ignored) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.