Is Poxel (EPA:POXEL) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Poxel S.A. (EPA:POXEL) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Poxel

How Much Debt Does Poxel Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Poxel had €22.6m of debt, an increase on €10.4m, over one year. But on the other hand it also has €40.2m in cash, leading to a €17.6m net cash position.

How Strong Is Poxel's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Poxel had liabilities of €16.5m due within 12 months and liabilities of €21.7m due beyond that. On the other hand, it had cash of €40.2m and €4.81m worth of receivables due within a year. So it can boast €6.81m more liquid assets than total liabilities.

This short term liquidity is a sign that Poxel could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Poxel has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Poxel'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.

In the last year Poxel had a loss before interest and tax, and actually shrunk its revenue by 74%, to €6.8m. To be frank that doesn't bode well.

So How Risky Is Poxel?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Poxel had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €26m and booked a €32m accounting loss. However, it has net cash of €17.6m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Poxel 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. 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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