We Think Teleste (HEL:TLT1V) Has A Fair Chunk Of Debt

Warren Buffett famously said, '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. Importantly, Teleste Corporation (HEL:TLT1V) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. 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 Teleste

What Is Teleste's Debt?

The image below, which you can click on for greater detail, shows that Teleste had debt of €23.1m at the end of September 2020, a reduction from €35.9m over a year. On the flip side, it has €13.1m in cash leading to net debt of about €10.1m.

A Look At Teleste's Liabilities

The latest balance sheet data shows that Teleste had liabilities of €50.8m due within a year, and liabilities of €28.9m falling due after that. Offsetting this, it had €13.1m in cash and €31.7m in receivables that were due within 12 months. So it has liabilities totalling €34.9m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Teleste is worth €80.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Teleste's ability to maintain a healthy balance sheet going forward. 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 Teleste wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to €217m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Teleste had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €4.1m at the EBIT level. 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. Surprisingly, we note that it actually reported positive free cash flow of €9.4m and a profit of €2.6m. So one might argue that there's still a chance it can get things on the right track. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Take risks, for example - Teleste has 3 warning signs we think you should be aware of.

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. 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.
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