Is AS PRFoods (TAL:PRF1T) Using Too Much Debt?

Warren Buffett famously said, '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. Importantly, AS PRFoods (TAL:PRF1T) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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, 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 AS PRFoods

What Is AS PRFoods's Net Debt?

You can click the graphic below for the historical numbers, but it shows that AS PRFoods had €14.2m of debt in June 2024, down from €16.8m, one year before. And it doesn't have much cash, so its net debt is about the same.

How Healthy Is AS PRFoods' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that AS PRFoods had liabilities of €13.4m due within 12 months and liabilities of €5.29m due beyond that. On the other hand, it had cash of €203.0k and €2.21m worth of receivables due within a year. So its liabilities total €16.3m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the €3.28m 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 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 €17m, which is a fall of 13%. That's not what we would hope to see.

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 €1.4m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of €2.8m in the last year. So while it's not wise to assume the company will fail, we do think it's risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with AS PRFoods , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.