Compagnie du Cambodge (EPA:CBDG) 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.' 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 Compagnie du Cambodge (EPA:CBDG) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Compagnie du Cambodge

What Is Compagnie du Cambodge's Debt?

As you can see below, Compagnie du Cambodge had €39.1m of debt at December 2020, down from €49.0m a year prior. But it also has €1.33b in cash to offset that, meaning it has €1.29b net cash.

A Look At Compagnie du Cambodge's Liabilities

According to the last reported balance sheet, Compagnie du Cambodge had liabilities of €89.9m due within 12 months, and liabilities of €11.2m due beyond 12 months. Offsetting these obligations, it had cash of €1.33b as well as receivables valued at €11.5m due within 12 months. So it actually has €1.24b more liquid assets than total liabilities.

This luscious liquidity implies that Compagnie du Cambodge's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Compagnie du Cambodge boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Compagnie du Cambodge's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Compagnie du Cambodge had a loss before interest and tax, and actually shrunk its revenue by 9.3%, to €57m. That's not what we would hope to see.

So How Risky Is Compagnie du Cambodge?

While Compagnie du Cambodge lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of €17m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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 example, we've discovered 1 warning sign for Compagnie du Cambodge that you should be aware of before investing here.

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. 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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