Bluelinea Société Anonyme (EPA:ALBLU) Is Carrying A Fair Bit Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Bluelinea Société Anonyme (EPA:ALBLU) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Bluelinea Société Anonyme

What Is Bluelinea Société Anonyme's Debt?

The image below, which you can click on for greater detail, shows that at June 2020 Bluelinea Société Anonyme had debt of €2.54m, up from €1.02m in one year. However, it also had €996.7k in cash, and so its net debt is €1.54m.

How Strong Is Bluelinea Société Anonyme's Balance Sheet?

We can see from the most recent balance sheet that Bluelinea Société Anonyme had liabilities of €3.32m falling due within a year, and liabilities of €2.36m due beyond that. On the other hand, it had cash of €996.7k and €1.70m worth of receivables due within a year. So its liabilities total €2.98m more than the combination of its cash and short-term receivables.

Of course, Bluelinea Société Anonyme has a market capitalization of €20.7m, so these liabilities are probably manageable. 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 future earnings, more than anything, that will determine Bluelinea 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, Bluelinea Société Anonyme made a loss at the EBIT level, and saw its revenue drop to €7.0m, which is a fall of 3.1%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Bluelinea Société Anonyme produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping €3.3m. 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. Another cause for caution is that is bled €2.0m in negative free cash flow over the last twelve months. 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 example, we've discovered 4 warning signs for Bluelinea Société Anonyme (2 make us uncomfortable!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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