Does AS PRFoods (TAL:PRF1T) Have A Healthy Balance Sheet?

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. We note that AS PRFoods (TAL:PRF1T) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for AS PRFoods

What Is AS PRFoods's Net Debt?

As you can see below, at the end of June 2021, AS PRFoods had €20.8m of debt, up from €19.9m a year ago. Click the image for more detail. On the flip side, it has €2.50m in cash leading to net debt of about €18.3m.

How Strong Is AS PRFoods' Balance Sheet?

We can see from the most recent balance sheet that AS PRFoods had liabilities of €19.1m falling due within a year, and liabilities of €20.3m due beyond that. Offsetting this, it had €2.50m in cash and €3.07m in receivables that were due within 12 months. So it has liabilities totalling €33.9m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the €14.1m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, AS PRFoods made a loss at the EBIT level, and saw its revenue drop to €59m, which is a fall of 25%. To be frank that doesn't bode well.

Caveat Emptor

While AS PRFoods's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable €3.6m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of €5.0m. And until that time we think this is a risky stock. 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. For example, we've discovered 2 warning signs for AS PRFoods (1 is concerning!) that you should be aware of before investing here.

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.
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