Health Check: How Prudently Does WALLIX GROUP (EPA:ALLIX) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We can see that WALLIX GROUP SA (EPA:ALLIX) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for WALLIX GROUP

What Is WALLIX GROUP's Net Debt?

As you can see below, WALLIX GROUP had €3.65m of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds €23.2m in cash, so it actually has €19.6m net cash.

A Look At WALLIX GROUP's Liabilities

According to the last reported balance sheet, WALLIX GROUP had liabilities of €24.9m due within 12 months, and liabilities of €2.77m due beyond 12 months. On the other hand, it had cash of €23.2m and €13.7m worth of receivables due within a year. So it actually has €9.30m more liquid assets than total liabilities.

This short term liquidity is a sign that WALLIX GROUP could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, WALLIX GROUP boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if WALLIX GROUP can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, WALLIX GROUP reported revenue of €24m, which is a gain of 26%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is WALLIX GROUP?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that WALLIX GROUP had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €6.5m and booked a €7.3m accounting loss. But the saving grace is the €19.6m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. WALLIX GROUP's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. For riskier companies like WALLIX GROUP I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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