These 4 Measures Indicate That Hopscotch Global PR Group (EPA:ALHOP) Is Using Debt Reasonably Well

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.' 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. We can see that Hopscotch Global PR Group (EPA:ALHOP) does use debt in its business. But is this debt a concern to shareholders?

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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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Hopscotch Global PR Group Carry?

The chart below, which you can click on for greater detail, shows that Hopscotch Global PR Group had €31.7m in debt in December 2024; about the same as the year before. But on the other hand it also has €38.3m in cash, leading to a €6.59m net cash position.

How Healthy Is Hopscotch Global PR Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hopscotch Global PR Group had liabilities of €117.0m due within 12 months and liabilities of €53.9m due beyond that. Offsetting this, it had €38.3m in cash and €87.4m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €45.2m.

This is a mountain of leverage relative to its market capitalization of €47.6m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. While it does have liabilities worth noting, Hopscotch Global PR Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Hopscotch Global PR Group

We saw Hopscotch Global PR Group grow its EBIT by 3.0% in the last twelve months. Whilst that hardly knocks our socks off it is a positive when it comes to debt. 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 Hopscotch Global PR Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Hopscotch Global PR Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Hopscotch Global PR Group actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While Hopscotch Global PR Group does have more liabilities than liquid assets, it also has net cash of €6.59m. And it impressed us with free cash flow of €5.9m, being 103% of its EBIT. So we are not troubled with Hopscotch Global PR Group's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Hopscotch Global PR Group has 2 warning signs we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.