Is Comptoir Group (LON:COM) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Comptoir Group PLC (LON:COM) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

View our latest analysis for Comptoir Group

What Is Comptoir Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Comptoir Group had UK£2.80m of debt in January 2022, down from UK£3.00m, one year before. However, its balance sheet shows it holds UK£9.87m in cash, so it actually has UK£7.07m net cash.

How Strong Is Comptoir Group's Balance Sheet?

The latest balance sheet data shows that Comptoir Group had liabilities of UK£9.18m due within a year, and liabilities of UK£21.1m falling due after that. Offsetting this, it had UK£9.87m in cash and UK£375.1k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by UK£20.0m.

This deficit casts a shadow over the UK£10.4m 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 you can't view debt in total isolation; since Comptoir Group will need earnings to service that debt. 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.

Over 12 months, Comptoir Group reported revenue of UK£21m, which is a gain of 66%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Comptoir Group?

Although Comptoir Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of UK£1.6m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. One positive was the revenue growth of 66% over the last year. But the stock still looks risky to us. 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. Be aware that Comptoir Group is showing 3 warning signs in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.