METabolic EXplorer (EPA:METEX) Has Debt But No Earnings; Should You Worry?

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 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 METabolic EXplorer S.A. (EPA:METEX) 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 assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for METabolic EXplorer

What Is METabolic EXplorer's Net Debt?

As you can see below, at the end of December 2020, METabolic EXplorer had €13.7m of debt, up from €6.36m a year ago. Click the image for more detail. But on the other hand it also has €18.2m in cash, leading to a €4.43m net cash position.

How Strong Is METabolic EXplorer's Balance Sheet?

The latest balance sheet data shows that METabolic EXplorer had liabilities of €13.8m due within a year, and liabilities of €16.9m falling due after that. On the other hand, it had cash of €18.2m and €4.20m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €8.36m.

Of course, METabolic EXplorer has a market capitalization of €147.8m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, METabolic EXplorer boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if METabolic EXplorer 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.

Given it has no significant operating revenue at the moment, shareholders will be hoping METabolic EXplorer can make progress and gain better traction for the business, before it runs low on cash.

So How Risky Is METabolic EXplorer?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year METabolic EXplorer had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €34m of cash and made a loss of €8.9m. However, it has net cash of €4.43m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. We've identified 4 warning signs with METabolic EXplorer , and understanding them should be part of your investment process.

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.

If you’re looking to trade METabolic EXplorer, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.