AS PRFoods (TAL:PRF1T) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies AS PRFoods (TAL:PRF1T) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for AS PRFoods

How Much Debt Does AS PRFoods Carry?

The chart below, which you can click on for greater detail, shows that AS PRFoods had €19.9m in debt in December 2020; about the same as the year before. However, because it has a cash reserve of €962.0k, its net debt is less, at about €19.0m.

How Strong Is AS PRFoods' Balance Sheet?

The latest balance sheet data shows that AS PRFoods had liabilities of €22.3m due within a year, and liabilities of €16.5m falling due after that. Offsetting these obligations, it had cash of €962.0k as well as receivables valued at €3.88m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €34.0m.

This deficit casts a shadow over the €14.2m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, AS PRFoods would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is AS PRFoods's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, AS PRFoods made a loss at the EBIT level, and saw its revenue drop to €63m, which is a fall of 25%. To be frank that doesn't bode well.

Caveat Emptor

Not only did AS PRFoods's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping €2.9m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of €2.6m over the last twelve months. That means it's on the risky side of things. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with AS PRFoods (including 2 which shouldn't be ignored) .

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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This article by Simply Wall St is general in nature. 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.
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