Haidemenos (ATH:HAIDE) Is Making Moderate Use Of Debt

Warren Buffett famously said, '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. We note that Haidemenos S.A. (ATH:HAIDE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Haidemenos

How Much Debt Does Haidemenos Carry?

As you can see below, at the end of December 2020, Haidemenos had €9.61m of debt, up from €8.99m a year ago. Click the image for more detail. However, it does have €6.01m in cash offsetting this, leading to net debt of about €3.60m.

How Strong Is Haidemenos' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Haidemenos had liabilities of €11.8m due within 12 months and liabilities of €1.45m due beyond that. On the other hand, it had cash of €6.01m and €4.97m worth of receivables due within a year. So it has liabilities totalling €2.28m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Haidemenos is worth €5.00m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Haidemenos'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 had a loss before interest and tax, and actually shrunk its revenue by 21%, to €14m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Haidemenos's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable €1.2m 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 €489k in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. For example - Haidemenos has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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