Is Makheia Group Société anonyme (EPA:ALMAK) Weighed On By Its Debt Load?

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. Importantly, Makheia Group Société anonyme (EPA:ALMAK) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

Check out our latest analysis for Makheia Group Société anonyme

What Is Makheia Group Société anonyme's Debt?

The image below, which you can click on for greater detail, shows that at June 2020 Makheia Group Société anonyme had debt of €5.48m, up from €4.94m in one year. However, it does have €465.0k in cash offsetting this, leading to net debt of about €5.01m.

How Strong Is Makheia Group Société anonyme's Balance Sheet?

According to the last reported balance sheet, Makheia Group Société anonyme had liabilities of €11.5m due within 12 months, and liabilities of €624.0k due beyond 12 months. Offsetting these obligations, it had cash of €465.0k as well as receivables valued at €3.25m due within 12 months. So its liabilities total €8.39m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the €3.48m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Makheia Group Société anonyme would likely require a major re-capitalisation if it had to pay its creditors today. 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 Makheia Group 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.

Over 12 months, Makheia Group Société anonyme made a loss at the EBIT level, and saw its revenue drop to €11m, which is a fall of 33%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Makheia Group Société anonyme's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable €4.2m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through €1.7m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for Makheia Group Société anonyme (1 is potentially serious) 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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