Is Distribuidora Internacional de Alimentación (BME:DIA) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, Distribuidora Internacional de Alimentación, S.A. (BME:DIA) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Distribuidora Internacional de Alimentación

What Is Distribuidora Internacional de Alimentación's Debt?

The image below, which you can click on for greater detail, shows that Distribuidora Internacional de Alimentación had debt of €1.36b at the end of June 2022, a reduction from €1.60b over a year. However, it also had €328.0m in cash, and so its net debt is €1.03b.

How Healthy Is Distribuidora Internacional de Alimentación's Balance Sheet?

The latest balance sheet data shows that Distribuidora Internacional de Alimentación had liabilities of €1.96b due within a year, and liabilities of €1.20b falling due after that. Offsetting these obligations, it had cash of €328.0m as well as receivables valued at €243.2m due within 12 months. So its liabilities total €2.58b more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the €812.5m 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. After all, Distribuidora Internacional de Alimentación 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 ultimately the future profitability of the business will decide if Distribuidora Internacional de Alimentación can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Distribuidora Internacional de Alimentación reported revenue of €6.9b, which is a gain of 5.6%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Distribuidora Internacional de Alimentación produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €67m. 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 €257m in the last year. So while it's not wise to assume the company will fail, we do think it's risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Distribuidora Internacional de Alimentación you should know about.

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. 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.