FIFAX Abp (HEL:FIFAX) Is Carrying A Fair Bit Of Debt

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 FIFAX Abp (HEL:FIFAX) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

See our latest analysis for FIFAX Abp

What Is FIFAX Abp's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 FIFAX Abp had debt of €6.33m, up from €3.83m in one year. However, it does have €523.3k in cash offsetting this, leading to net debt of about €5.80m.

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How Healthy Is FIFAX Abp's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that FIFAX Abp had liabilities of €5.76m due within 12 months and liabilities of €4.11m due beyond that. Offsetting this, it had €523.3k in cash and €125.9k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €9.23m.

FIFAX Abp has a market capitalization of €18.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine FIFAX Abp'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.

Given it has no significant operating revenue at the moment, shareholders will be hoping FIFAX Abp can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Despite the top line growth, FIFAX Abp still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable €6.0m 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. Another cause for caution is that is bled €6.0m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very 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. Case in point: We've spotted 3 warning signs for FIFAX Abp you should be aware of, and 2 of them are a bit concerning.

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.