Is Proodeftiki (ATH:PRD) A Risky Investment?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Proodeftiki S.A. (ATH:PRD) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

What Is Proodeftiki's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Proodeftiki had debt of €4.07m, up from €3.79m in one year. However, because it has a cash reserve of €175.7k, its net debt is less, at about €3.89m.

How Strong Is Proodeftiki's Balance Sheet?

According to the last reported balance sheet, Proodeftiki had liabilities of €5.58m due within 12 months, and liabilities of €3.96m due beyond 12 months. Offsetting this, it had €175.7k in cash and €7.04m in receivables that were due within 12 months. So its liabilities total €2.33m more than the combination of its cash and short-term receivables.

Proodeftiki has a market capitalization of €6.57m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Proodeftiki 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.

View our latest analysis for Proodeftiki

Given it has no significant operating revenue at the moment, shareholders will be hoping Proodeftiki can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Importantly, Proodeftiki had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €151k 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. However, it doesn't help that it burned through €207k of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Proodeftiki (of which 4 can't be ignored!) you should know about.

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.

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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.