Is EKINOPS (EPA:EKI) Weighed On By Its Debt Load?

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.' 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 EKINOPS S.A. (EPA:EKI) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for EKINOPS

How Much Debt Does EKINOPS Carry?

As you can see below, EKINOPS had €23.8m of debt at June 2024, down from €34.1m a year prior. But it also has €41.8m in cash to offset that, meaning it has €18.0m net cash.

How Strong Is EKINOPS' Balance Sheet?

We can see from the most recent balance sheet that EKINOPS had liabilities of €46.5m falling due within a year, and liabilities of €29.1m due beyond that. On the other hand, it had cash of €41.8m and €35.9m worth of receivables due within a year. So it actually has €2.07m more liquid assets than total liabilities.

This surplus suggests that EKINOPS has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, EKINOPS boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if EKINOPS 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.

In the last year EKINOPS had a loss before interest and tax, and actually shrunk its revenue by 15%, to €116m. We would much prefer see growth.

So How Risky Is EKINOPS?

While EKINOPS lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €8.6m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for EKINOPS you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.