We Think SA Energisme (EPA:ALNRG) Has A Fair Chunk Of 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, SA Energisme (EPA:ALNRG) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is SA Energisme's Debt?

The image below, which you can click on for greater detail, shows that SA Energisme had debt of €2.89m at the end of December 2024, a reduction from €3.82m over a year. On the flip side, it has €2.02m in cash leading to net debt of about €869.6k.

How Strong Is SA Energisme's Balance Sheet?

We can see from the most recent balance sheet that SA Energisme had liabilities of €6.50m falling due within a year, and liabilities of €2.50m due beyond that. Offsetting this, it had €2.02m in cash and €5.03m in receivables that were due within 12 months. So its liabilities total €1.95m more than the combination of its cash and short-term receivables.

Of course, SA Energisme has a market capitalization of €9.98m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But it is SA Energisme'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.

View our latest analysis for SA Energisme

In the last year SA Energisme had a loss before interest and tax, and actually shrunk its revenue by 12%, to €5.4m. That's not what we would hope to see.

Caveat Emptor

Not only did SA Energisme's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping €3.5m. 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. For example, we would not want to see a repeat of last year's loss of €3.5m. So to be blunt we do think it is risky. 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. Case in point: We've spotted 2 warning signs for SA Energisme 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.