Is Spineway Société Anonyme (EPA:ALSPW) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Spineway Société Anonyme (EPA:ALSPW) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Spineway Société Anonyme

What Is Spineway Société Anonyme's Net Debt?

As you can see below, Spineway Société Anonyme had €2.69m of debt at December 2020, down from €4.41m a year prior. However, it does have €4.86m in cash offsetting this, leading to net cash of €2.17m.

A Look At Spineway Société Anonyme's Liabilities

According to the last reported balance sheet, Spineway Société Anonyme had liabilities of €3.11m due within 12 months, and liabilities of €1.62m due beyond 12 months. Offsetting these obligations, it had cash of €4.86m as well as receivables valued at €1.43m due within 12 months. So it actually has €1.56m more liquid assets than total liabilities.

This short term liquidity is a sign that Spineway Société Anonyme could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Spineway Société Anonyme has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Spineway Société Anonyme 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.

In the last year Spineway Société Anonyme had a loss before interest and tax, and actually shrunk its revenue by 19%, to €4.5m. That's not what we would hope to see.

So How Risky Is Spineway Société Anonyme?

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 Spineway Société Anonyme lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €1.4m of cash and made a loss of €14m. Given it only has net cash of €2.17m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For example Spineway Société Anonyme has 3 warning signs (and 1 which is concerning) we think you should know about.

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. 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.
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