Bluelinea Société Anonyme (EPA:ALBLU) Is Making Moderate Use 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 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. We can see that Bluelinea Société Anonyme (EPA:ALBLU) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Bluelinea Société Anonyme

What Is Bluelinea Société Anonyme's Net Debt?

As you can see below, at the end of June 2024, Bluelinea Société Anonyme had €4.53m of debt, up from €3.62m a year ago. Click the image for more detail. However, it does have €725.9k in cash offsetting this, leading to net debt of about €3.80m.

How Healthy Is Bluelinea Société Anonyme's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bluelinea Société Anonyme had liabilities of €6.49m due within 12 months and liabilities of €2.37m due beyond that. Offsetting this, it had €725.9k in cash and €1.80m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €6.34m.

While this might seem like a lot, it is not so bad since Bluelinea Société Anonyme has a market capitalization of €11.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Bluelinea Société Anonyme's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Bluelinea Société Anonyme had a loss before interest and tax, and actually shrunk its revenue by 6.3%, to €11m. We would much prefer see growth.

Caveat Emptor

Importantly, Bluelinea Société Anonyme had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €1.6m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of €1.7m. So we do think this stock is quite 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. We've identified 2 warning signs with Bluelinea Société Anonyme , and understanding them should be part of your investment process.

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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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.