Pixium Vision (EPA:ALPIX) Has Debt But No Earnings; Should You Worry?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Pixium Vision SA (EPA:ALPIX) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 Pixium Vision

What Is Pixium Vision's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Pixium Vision had €7.23m of debt, an increase on €6.26m, over one year. But it also has €10.6m in cash to offset that, meaning it has €3.34m net cash.

A Look At Pixium Vision's Liabilities

According to the last reported balance sheet, Pixium Vision had liabilities of €3.80m due within 12 months, and liabilities of €7.85m due beyond 12 months. On the other hand, it had cash of €10.6m and €1.40m worth of receivables due within a year. So it actually has €322.5k more liquid assets than total liabilities.

This state of affairs indicates that Pixium Vision's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the €44.3m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Pixium Vision has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Pixium Vision 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.

Since Pixium Vision doesn't have significant operating revenue, shareholders must hope it'll ramp sales of its new medical tech as soon as possible.

So How Risky Is Pixium Vision?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Pixium Vision had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €7.0m of cash and made a loss of €9.2m. With only €3.34m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Case in point: We've spotted 7 warning signs for Pixium Vision you should be aware of, and 3 of them are a bit unpleasant.

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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