Is Comptoir Group (LON:COM) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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, Comptoir Group PLC (LON:COM) does carry debt. 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. If things get really bad, the lenders can take control of the business. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Comptoir Group

What Is Comptoir Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Comptoir Group had UK£1.30m of debt in June 2024, down from UK£1.90m, one year before. However, it does have UK£4.85m in cash offsetting this, leading to net cash of UK£3.55m.

How Healthy Is Comptoir Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Comptoir Group had liabilities of UK£10.7m due within 12 months and liabilities of UK£18.7m due beyond that. Offsetting this, it had UK£4.85m in cash and UK£1.78m in receivables that were due within 12 months. So its liabilities total UK£22.7m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the UK£4.48m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Comptoir Group would probably need a major re-capitalization if its creditors were to demand repayment. Given that Comptoir Group has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. There's no doubt that we learn most about debt from the balance sheet. But it is Comptoir Group's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Comptoir Group wasn't profitable at an EBIT level, but managed to grow its revenue by 4.0%, to UK£33m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Comptoir Group?

While Comptoir Group lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow UK£1.2m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Comptoir Group 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.