Is Agile Content (BME:AGIL) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Agile Content, S.A. (BME:AGIL) makes use of debt. 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Agile Content

What Is Agile Content's Debt?

The image below, which you can click on for greater detail, shows that Agile Content had debt of €14.1m at the end of December 2021, a reduction from €22.2m over a year. However, it does have €14.3m in cash offsetting this, leading to net cash of €207.2k.

How Strong Is Agile Content's Balance Sheet?

We can see from the most recent balance sheet that Agile Content had liabilities of €48.9m falling due within a year, and liabilities of €25.7m due beyond that. On the other hand, it had cash of €14.3m and €25.8m worth of receivables due within a year. So it has liabilities totalling €34.5m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Agile Content is worth €126.9m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Agile Content also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Agile Content'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 Agile Content wasn't profitable at an EBIT level, but managed to grow its revenue by 169%, to €55m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Agile Content?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Agile Content had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €5.5m of cash and made a loss of €5.8m. With only €207.2k on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, Agile Content's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Case in point: We've spotted 2 warning signs for Agile Content you should be aware of, and 1 of them can't be ignored.

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.