Does Mare Nostrum Société anonyme (EPA:ALMAR) Have A Healthy Balance Sheet?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Mare Nostrum Société anonyme (EPA:ALMAR) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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.

View our latest analysis for Mare Nostrum Société anonyme

How Much Debt Does Mare Nostrum Société anonyme Carry?

As you can see below, at the end of December 2020, Mare Nostrum Société anonyme had €28.2m of debt, up from €14.8m a year ago. Click the image for more detail. However, because it has a cash reserve of €15.2m, its net debt is less, at about €13.0m.

How Healthy Is Mare Nostrum Société anonyme's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Mare Nostrum Société anonyme had liabilities of €7.39m due within 12 months and liabilities of €57.0m due beyond that. Offsetting these obligations, it had cash of €15.2m as well as receivables valued at €39.6m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €9.64m.

While this might seem like a lot, it is not so bad since Mare Nostrum Société anonyme has a market capitalization of €24.6m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Mare Nostrum Société anonyme will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Mare Nostrum Société anonyme made a loss at the EBIT level, and saw its revenue drop to €128m, which is a fall of 24%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Mare Nostrum Société anonyme's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable €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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €9.3m of cash over the last year. So in short it's a really risky stock. 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. For instance, we've identified 3 warning signs for Mare Nostrum Société anonyme (2 can't be ignored) 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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