Does Symphony Environmental Technologies (LON:SYM) Have A Healthy Balance Sheet?

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. Importantly, Symphony Environmental Technologies plc (LON:SYM) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. 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.

Check out our latest analysis for Symphony Environmental Technologies

What Is Symphony Environmental Technologies's Debt?

The image below, which you can click on for greater detail, shows that Symphony Environmental Technologies had debt of UK£2.05m at the end of June 2024, a reduction from UK£2.77m over a year. However, it also had UK£754.0k in cash, and so its net debt is UK£1.29m.

How Healthy Is Symphony Environmental Technologies' Balance Sheet?

We can see from the most recent balance sheet that Symphony Environmental Technologies had liabilities of UK£2.39m falling due within a year, and liabilities of UK£1.54m due beyond that. On the other hand, it had cash of UK£754.0k and UK£1.98m worth of receivables due within a year. So it has liabilities totalling UK£1.19m more than its cash and near-term receivables, combined.

Given Symphony Environmental Technologies has a market capitalization of UK£7.09m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Symphony Environmental Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Symphony Environmental Technologies made a loss at the EBIT level, and saw its revenue drop to UK£6.2m, which is a fall of 8.0%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Symphony Environmental Technologies produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable UK£1.5m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled UK£591k in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. We've identified 5 warning signs with Symphony Environmental Technologies (at least 3 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.