We Think Les Hôtels Baverez (EPA:ALLHB) Has A Fair Chunk Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that Les Hôtels Baverez S.A. (EPA:ALLHB) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for Les Hôtels Baverez

What Is Les Hôtels Baverez's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Les Hôtels Baverez had €19.1m of debt, an increase on €8.58m, over one year. However, because it has a cash reserve of €10.5m, its net debt is less, at about €8.60m.

How Healthy Is Les Hôtels Baverez's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Les Hôtels Baverez had liabilities of €8.03m due within 12 months and liabilities of €16.1m due beyond that. Offsetting this, it had €10.5m in cash and €1.62m in receivables that were due within 12 months. So it has liabilities totalling €12.1m more than its cash and near-term receivables, combined.

Given Les Hôtels Baverez has a market capitalization of €119.8m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Les Hôtels Baverez'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, Les Hôtels Baverez made a loss at the EBIT level, and saw its revenue drop to €5.2m, which is a fall of 84%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Les Hôtels Baverez'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 €9.6m. 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. 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 €10m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Les Hôtels Baverez that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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