Here's Why Plant Advanced Technologies (EPA:ALPAT) Can Afford Some Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Plant Advanced Technologies SA (EPA:ALPAT) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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, 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.

See our latest analysis for Plant Advanced Technologies

How Much Debt Does Plant Advanced Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2020 Plant Advanced Technologies had €3.90m of debt, an increase on €3.66m, over one year. On the flip side, it has €1.55m in cash leading to net debt of about €2.35m.

How Healthy Is Plant Advanced Technologies's Balance Sheet?

According to the last reported balance sheet, Plant Advanced Technologies had liabilities of €2.29m due within 12 months, and liabilities of €3.27m due beyond 12 months. On the other hand, it had cash of €1.55m and €1.72m worth of receivables due within a year. So its liabilities total €2.29m more than the combination of its cash and short-term receivables.

Since publicly traded Plant Advanced Technologies shares are worth a total of €19.7m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Plant Advanced Technologies can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Plant Advanced Technologies reported revenue of €1.8m, which is a gain of 7.2%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Plant Advanced Technologies produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €1.6m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of €784k into a profit. So to be blunt we do think it is risky. 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. Take risks, for example - Plant Advanced Technologies has 4 warning signs we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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