Health Check: How Prudently Does Lepermislibre Société anonyme (EPA:ALLPL) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Lepermislibre Société anonyme (EPA:ALLPL) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Lepermislibre Société anonyme

How Much Debt Does Lepermislibre Société anonyme Carry?

As you can see below, Lepermislibre Société anonyme had €2.74m of debt at June 2024, down from €3.63m a year prior. However, it does have €2.79m in cash offsetting this, leading to net cash of €44.6k.

A Look At Lepermislibre Société anonyme's Liabilities

According to the last reported balance sheet, Lepermislibre Société anonyme had liabilities of €7.61m due within 12 months, and liabilities of €727.9k due beyond 12 months. Offsetting these obligations, it had cash of €2.79m as well as receivables valued at €5.18m due within 12 months. So it has liabilities totalling €371.7k more than its cash and near-term receivables, combined.

Given Lepermislibre Société anonyme has a market capitalization of €6.60m, 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. Despite its noteworthy liabilities, Lepermislibre Société anonyme boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Lepermislibre Société anonyme can strengthen its balance sheet over time. 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, Lepermislibre Société anonyme made a loss at the EBIT level, and saw its revenue drop to €16m, which is a fall of 4.9%. We would much prefer see growth.

So How Risky Is Lepermislibre Société anonyme?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Lepermislibre Société anonyme had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €3.0m and booked a €3.2m accounting loss. With only €44.6k on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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 Lepermislibre Société anonyme (2 are significant) you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.