We Think Mastrad Société Anonyme (EPA:ALMAS) Has A Fair Chunk Of Debt

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.' 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. We can see that Mastrad Société Anonyme (EPA:ALMAS) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Mastrad Société Anonyme

What Is Mastrad Société Anonyme's Net Debt?

The chart below, which you can click on for greater detail, shows that Mastrad Société Anonyme had €2.69m in debt in December 2020; about the same as the year before. However, it does have €862.0k in cash offsetting this, leading to net debt of about €1.83m.

How Healthy Is Mastrad Société Anonyme's Balance Sheet?

We can see from the most recent balance sheet that Mastrad Société Anonyme had liabilities of €1.96m falling due within a year, and liabilities of €2.74m due beyond that. On the other hand, it had cash of €862.0k and €2.06m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.78m.

Given Mastrad Société Anonyme has a market capitalization of €18.3m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But it is Mastrad Société Anonyme'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, Mastrad Société Anonyme reported revenue of €7.3m, which is a gain of 50%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Mastrad Société Anonyme managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at €550k. 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. However, it doesn't help that it burned through €1.9m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Mastrad Société Anonyme (1 is a bit unpleasant) 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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