Is Haidemenos Integrated Printing Services (ATH:HAIDE) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Haidemenos Integrated Printing Services S.A. (ATH:HAIDE) does use debt in its business. 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Haidemenos Integrated Printing Services

What Is Haidemenos Integrated Printing Services's Net Debt?

As you can see below, at the end of June 2023, Haidemenos Integrated Printing Services had €9.44m of debt, up from €8.73m a year ago. Click the image for more detail. On the flip side, it has €3.75m in cash leading to net debt of about €5.69m.

A Look At Haidemenos Integrated Printing Services' Liabilities

We can see from the most recent balance sheet that Haidemenos Integrated Printing Services had liabilities of €10.8m falling due within a year, and liabilities of €1.85m due beyond that. Offsetting these obligations, it had cash of €3.75m as well as receivables valued at €4.83m due within 12 months. So its liabilities total €4.02m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €5.13m, so it does suggest shareholders should keep an eye on Haidemenos Integrated Printing Services' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. There's no doubt that we learn most about debt from the balance sheet. But it is Haidemenos Integrated Printing Services'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.

In the last year Haidemenos Integrated Printing Services's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months Haidemenos Integrated Printing Services produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €243k at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled €1.1m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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 - Haidemenos Integrated Printing Services has 2 warning signs we think you should be aware of.

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.