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’. 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. As with many other companies Trilogiq S.A. (EPA:ALTRI) makes use of debt. 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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company’s debt levels is to consider its cash and debt together.
How Much Debt Does Trilogiq Carry?
As you can see below, Trilogiq had €1.51m of debt at September 2019, down from €3.73m a year prior. But on the other hand it also has €17.3m in cash, leading to a €15.8m net cash position.
How Healthy Is Trilogiq’s Balance Sheet?
We can see from the most recent balance sheet that Trilogiq had liabilities of €3.65m falling due within a year, and liabilities of €1.73m due beyond that. Offsetting these obligations, it had cash of €17.3m as well as receivables valued at €8.22m due within 12 months. So it actually has €20.1m more liquid assets than total liabilities.
This surplus liquidity suggests that Trilogiq’s balance sheet could take a hit just as well as Homer Simpson’s head can take a punch. With this in mind one could posit that its balance sheet is as strong as beautiful a rare rhino. Succinctly put, Trilogiq boasts net cash, so it’s fair to say it does not have a heavy debt load! There’s no doubt that we learn most about debt from the balance sheet. But it is Trilogiq’s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it’s definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Over 12 months, Trilogiq made a loss at the EBIT level, and saw its revenue drop to €28m, which is a fall of 16%. We would much prefer see growth.
So How Risky Is Trilogiq?
While Trilogiq lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €3.6m. So taking that on face value, and considering the net cash situation, we don’t think that the stock is too risky in the near term. The next few years will be important as the business matures. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we’ve discovered 4 warning signs for Trilogiq (1 is a bit unpleasant!) that you should be aware of before investing here.
Of course, if you’re the type of investor who prefers buying stocks without the burden of debt, then don’t hesitate to discover our exclusive list of net cash growth stocks, today.
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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. Thank you for reading.