Does Borges Agricultural & Industrial Nuts (BME:BAIN) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that Borges Agricultural & Industrial Nuts, S.A. (BME:BAIN) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Borges Agricultural & Industrial Nuts

What Is Borges Agricultural & Industrial Nuts's Net Debt?

The image below, which you can click on for greater detail, shows that at May 2024 Borges Agricultural & Industrial Nuts had debt of €44.2m, up from €38.7m in one year. But it also has €70.4m in cash to offset that, meaning it has €26.2m net cash.

How Strong Is Borges Agricultural & Industrial Nuts' Balance Sheet?

We can see from the most recent balance sheet that Borges Agricultural & Industrial Nuts had liabilities of €56.3m falling due within a year, and liabilities of €21.0m due beyond that. On the other hand, it had cash of €70.4m and €7.42m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Borges Agricultural & Industrial Nuts' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €74.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Borges Agricultural & Industrial Nuts has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Borges Agricultural & Industrial Nuts'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 Borges Agricultural & Industrial Nuts had a loss before interest and tax, and actually shrunk its revenue by 15%, to €117m. We would much prefer see growth.

So How Risky Is Borges Agricultural & Industrial Nuts?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Borges Agricultural & Industrial Nuts had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €783k and booked a €3.4m accounting loss. But the saving grace is the €26.2m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Case in point: We've spotted 2 warning signs for Borges Agricultural & Industrial Nuts you should be aware of, and 1 of them is potentially serious.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.