Is Figeac Aero Société Anonyme (EPA:FGA) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Figeac Aero Société Anonyme (EPA:FGA) does use debt in its business. But the more important question is: how much risk is that debt creating?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Figeac Aero Société Anonyme

What Is Figeac Aero Société Anonyme's Net Debt?

As you can see below, Figeac Aero Société Anonyme had €390.3m of debt, at September 2021, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of €46.1m, its net debt is less, at about €344.2m.

A Look At Figeac Aero Société Anonyme's Liabilities

The latest balance sheet data shows that Figeac Aero Société Anonyme had liabilities of €219.8m due within a year, and liabilities of €337.8m falling due after that. Offsetting this, it had €46.1m in cash and €69.8m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €441.7m.

The deficiency here weighs heavily on the €217.7m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Figeac Aero Société Anonyme would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Figeac Aero Société Anonyme'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.

Over 12 months, Figeac Aero Société Anonyme made a loss at the EBIT level, and saw its revenue drop to €230m, which is a fall of 27%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Figeac Aero Société Anonyme's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at €10m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of €18m over the last twelve months. That means it's on the risky side of things. For riskier companies like Figeac Aero Société Anonyme I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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. 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.