Hopscotch Global PR Group (EPA:HOP) 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 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 Hopscotch Global PR Group (EPA:HOP) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Hopscotch Global PR Group

How Much Debt Does Hopscotch Global PR Group Carry?

As you can see below, at the end of December 2020, Hopscotch Global PR Group had €29.4m of debt, up from €16.9m a year ago. Click the image for more detail. But on the other hand it also has €38.8m in cash, leading to a €9.39m 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 €68.0m due within 12 months and liabilities of €39.7m due beyond that. Offsetting these obligations, it had cash of €38.8m as well as receivables valued at €42.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €26.9m.

When you consider that this deficiency exceeds the company's €23.3m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. Given that Hopscotch Global PR Group has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. 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 Hopscotch Global PR Group'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, Hopscotch Global PR Group made a loss at the EBIT level, and saw its revenue drop to €122m, which is a fall of 38%. That makes us nervous, to say the least.

So How Risky Is Hopscotch Global PR Group?

While Hopscotch Global PR Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €8.1m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. 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 - Hopscotch Global PR Group has 2 warning signs we think you should be aware of.

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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