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. As with many other companies Miliboo Société anonyme (EPA:ALMLB) makes use of debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Miliboo Société anonyme's Debt?
As you can see below, at the end of October 2020, Miliboo Société anonyme had €12.0m of debt, up from €4.79m a year ago. Click the image for more detail. However, it does have €8.90m in cash offsetting this, leading to net debt of about €3.07m.
How Healthy Is Miliboo Société anonyme's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Miliboo Société anonyme had liabilities of €13.5m due within 12 months and liabilities of €6.85m due beyond that. Offsetting these obligations, it had cash of €8.90m as well as receivables valued at €1.88m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €9.54m.
Miliboo Société anonyme has a market capitalization of €29.1m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Miliboo 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, Miliboo Société anonyme reported revenue of €34m, which is a gain of 29%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
Even though Miliboo Société anonyme managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost €425k at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of €326k into a profit. So to be blunt we do think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Miliboo Société anonyme 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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