Is Agile Content (BME:AGIL) A Risky Investment?

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.' 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. We note that Agile Content, S.A. (BME:AGIL) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Agile Content

What Is Agile Content's Net Debt?

As you can see below, Agile Content had €33.5m of debt at June 2023, down from €42.5m a year prior. However, it does have €14.1m in cash offsetting this, leading to net debt of about €19.5m.

A Look At Agile Content's Liabilities

The latest balance sheet data shows that Agile Content had liabilities of €46.5m due within a year, and liabilities of €26.3m falling due after that. Offsetting this, it had €14.1m in cash and €31.1m in receivables that were due within 12 months. So its liabilities total €27.6m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Agile Content has a market capitalization of €88.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Agile Content 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.

In the last year Agile Content wasn't profitable at an EBIT level, but managed to grow its revenue by 26%, to €106m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Agile Content's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost €2.2m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 €6.1m. So to be blunt we do think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Agile Content is showing 3 warning signs in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.