Is Median Technologies (EPA:ALMDT) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Median Technologies SA (EPA:ALMDT) does use debt in its business. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Median Technologies

How Much Debt Does Median Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Median Technologies had €15.6m of debt, an increase on €14.5m, over one year. But on the other hand it also has €39.3m in cash, leading to a €23.6m net cash position.

How Strong Is Median Technologies' Balance Sheet?

We can see from the most recent balance sheet that Median Technologies had liabilities of €27.3m falling due within a year, and liabilities of €17.2m due beyond that. Offsetting this, it had €39.3m in cash and €7.45m in receivables that were due within 12 months. So it actually has €2.25m more liquid assets than total liabilities.

This state of affairs indicates that Median Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €161.8m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Median Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Median Technologies can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Median Technologies reported revenue of €21m, which is a gain of 53%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Median Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Median Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €11m of cash and made a loss of €19m. But at least it has €23.6m on the balance sheet to spend on growth, near-term. Median Technologies's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Median Technologies 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.