Health Check: How Prudently Does Plastiques du Val de Loire (EPA:PVL) Use 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Plastiques du Val de Loire (EPA:PVL) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 Plastiques du Val de Loire

What Is Plastiques du Val de Loire's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Plastiques du Val de Loire had €266.5m of debt, an increase on €252.8m, over one year. However, it does have €55.3m in cash offsetting this, leading to net debt of about €211.2m.

A Look At Plastiques du Val de Loire's Liabilities

The latest balance sheet data shows that Plastiques du Val de Loire had liabilities of €273.2m due within a year, and liabilities of €243.6m falling due after that. Offsetting this, it had €55.3m in cash and €255.4m in receivables that were due within 12 months. So it has liabilities totalling €206.1m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's €180.4m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Plastiques du Val de Loire'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.

Over 12 months, Plastiques du Val de Loire made a loss at the EBIT level, and saw its revenue drop to €631m, which is a fall of 13%. That's not what we would hope to see.

Caveat Emptor

While Plastiques du Val de Loire's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €1.3m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of €16m. And until that time we think this is a risky stock. 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 2 warning signs for Plastiques du Val de Loire you should be aware of, and 1 of them is a bit concerning.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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