Spineway Société Anonyme (EPA:ALSPW) Has Debt But No Earnings; Should You Worry?

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.' 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 note that Spineway Société Anonyme (EPA:ALSPW) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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.

View our latest analysis for Spineway Société Anonyme

How Much Debt Does Spineway Société Anonyme Carry?

As you can see below, Spineway Société Anonyme had €2.69m of debt at December 2020, down from €4.41m a year prior. But on the other hand it also has €4.86m in cash, leading to a €2.17m net cash position.

How Healthy Is Spineway Société Anonyme's Balance Sheet?

According to the last reported balance sheet, Spineway Société Anonyme had liabilities of €2.91m due within 12 months, and liabilities of €1.82m due beyond 12 months. Offsetting this, it had €4.86m in cash and €1.43m in receivables that were due within 12 months. So it can boast €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. 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 Spineway Société Anonyme's ability to maintain a healthy balance sheet going forward. 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. We would much prefer see growth.

So How Risky Is Spineway Société Anonyme?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Spineway Société Anonyme had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €1.4m of cash and made a loss of €14m. With only €2.17m 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Spineway Société Anonyme (including 1 which can't be ignored) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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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