Intracom Constructions Societe Anonyme Technical and Steel Constructions (ATH:INKAT) Has Debt But No Earnings; Should You Worry?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Intracom Constructions Societe Anonyme Technical and Steel Constructions (ATH:INKAT) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Intracom Constructions Societe Anonyme Technical and Steel Constructions

What Is Intracom Constructions Societe Anonyme Technical and Steel Constructions's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 Intracom Constructions Societe Anonyme Technical and Steel Constructions had €107.9m of debt, an increase on €66.0m, over one year. However, it does have €7.80m in cash offsetting this, leading to net debt of about €100.1m.

A Look At Intracom Constructions Societe Anonyme Technical and Steel Constructions' Liabilities

According to the last reported balance sheet, Intracom Constructions Societe Anonyme Technical and Steel Constructions had liabilities of €220.6m due within 12 months, and liabilities of €79.3m due beyond 12 months. Offsetting these obligations, it had cash of €7.80m as well as receivables valued at €177.9m due within 12 months. So it has liabilities totalling €114.2m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of €105.6m, we think shareholders really should watch Intracom Constructions Societe Anonyme Technical and Steel Constructions's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. When analysing debt levels, the balance sheet is the obvious place to start. But it is Intracom Constructions Societe Anonyme Technical and Steel Constructions's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Intracom Constructions Societe Anonyme Technical and Steel Constructions made a loss at the EBIT level, and saw its revenue drop to €175m, which is a fall of 29%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Intracom Constructions Societe Anonyme Technical and Steel Constructions's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping €12m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through €23m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. 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. For example, we've discovered 3 warning signs for Intracom Constructions Societe Anonyme Technical and Steel Constructions that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.