Is Broadpeak Société anonyme (EPA:ALBPK) A Risky Investment?

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.' 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. We can see that Broadpeak Société anonyme (EPA:ALBPK) does use debt in its business. But the real question is whether this debt is making the company risky.

We've discovered 3 warning signs about Broadpeak Société anonyme. View them for free.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Broadpeak Société anonyme's Net Debt?

As you can see below, Broadpeak Société anonyme had €11.0m of debt at December 2024, down from €11.7m a year prior. On the flip side, it has €4.09m in cash leading to net debt of about €6.89m.

How Strong Is Broadpeak Société anonyme's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Broadpeak Société anonyme had liabilities of €19.7m due within 12 months and liabilities of €11.0m due beyond that. On the other hand, it had cash of €4.09m and €23.9m worth of receivables due within a year. So it has liabilities totalling €2.71m more than its cash and near-term receivables, combined.

Since publicly traded Broadpeak Société anonyme shares are worth a total of €16.5m, 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Broadpeak Société anonyme 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.

Check out our latest analysis for Broadpeak Société anonyme

In the last year Broadpeak Société anonyme's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, Broadpeak Société anonyme had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €7.9m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of €4.0m. So to be blunt we do think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Broadpeak Société anonyme you should be aware of, and 1 of them is a bit concerning.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.