Is Interwood-Xylemporia A.T.E.N.E (ATH:XYLEK) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Interwood-Xylemporia A.T.E.N.E. (ATH:XYLEK) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Interwood-Xylemporia A.T.E.N.E

What Is Interwood-Xylemporia A.T.E.N.E's Debt?

As you can see below, Interwood-Xylemporia A.T.E.N.E had €30.4m of debt, at June 2021, which is about the same as the year before. You can click the chart for greater detail. However, it also had €805.9k in cash, and so its net debt is €29.6m.

How Strong Is Interwood-Xylemporia A.T.E.N.E's Balance Sheet?

The latest balance sheet data shows that Interwood-Xylemporia A.T.E.N.E had liabilities of €19.6m due within a year, and liabilities of €18.4m falling due after that. On the other hand, it had cash of €805.9k and €15.0m worth of receivables due within a year. So it has liabilities totalling €22.2m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the €11.1m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Interwood-Xylemporia A.T.E.N.E would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Interwood-Xylemporia A.T.E.N.E'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 Interwood-Xylemporia A.T.E.N.E wasn't profitable at an EBIT level, but managed to grow its revenue by 20%, to €34m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Interwood-Xylemporia A.T.E.N.E still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable €3.2m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of €5.7m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Interwood-Xylemporia A.T.E.N.E is showing 2 warning signs in our investment analysis , and 1 of those is significant...

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.

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.

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