Is J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing (ATH:MIN) Using Too Much Debt?

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 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 J. & B. Ladenis Bros S.A. - Minerva - Knitwear Manufacturing Company (ATH:MIN) makes use of debt. But the more important question is: how much risk is that debt creating?

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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 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's Debt?

As you can see below, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing had €13.8m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has €479.0k in cash leading to net debt of about €13.3m.

How Healthy Is J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing had liabilities of €8.34m due within 12 months and liabilities of €14.9m due beyond that. Offsetting this, it had €479.0k in cash and €5.92m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €16.8m.

The deficiency here weighs heavily on the €2.79m 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. After all, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing would likely require a major re-capitalisation if it had to pay its creditors today.

View our latest analysis for J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Weak interest cover of 1.1 times and a disturbingly high net debt to EBITDA ratio of 5.2 hit our confidence in J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing like a one-two punch to the gut. This means we'd consider it to have a heavy debt load. More concerning, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing saw its EBIT drop by 3.0% in the last twelve months. If that earnings trend continues the company will face an uphill battle to pay off its debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Looking at the most recent three years, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing recorded free cash flow of 42% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Our View

On the face of it, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's interest cover left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. Having said that, its ability to convert EBIT to free cash flow isn't such a worry. After considering the datapoints discussed, we think J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has too much debt. That sort of riskiness is ok for some, but it certainly doesn't float our boat. 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, we've discovered 2 warning signs for J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.