eDreams ODIGEO (BME:EDR) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that eDreams ODIGEO S.A. (BME:EDR) does use debt in its business. But is this debt a concern to shareholders?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for eDreams ODIGEO

What Is eDreams ODIGEO's Net Debt?

The image below, which you can click on for greater detail, shows that eDreams ODIGEO had debt of €418.9m at the end of March 2022, a reduction from €508.1m over a year. However, it also had €45.9m in cash, and so its net debt is €373.0m.

How Healthy Is eDreams ODIGEO's Balance Sheet?

We can see from the most recent balance sheet that eDreams ODIGEO had liabilities of €400.9m falling due within a year, and liabilities of €401.7m due beyond that. Offsetting this, it had €45.9m in cash and €48.4m in receivables that were due within 12 months. So its liabilities total €708.3m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of €799.6m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine eDreams ODIGEO's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year eDreams ODIGEO wasn't profitable at an EBIT level, but managed to grow its revenue by 272%, to €398m. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

Despite the top line growth, eDreams ODIGEO still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at €42m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of €66m. So in short it's a really risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for eDreams ODIGEO you should know about.

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.