We Think Nafpaktos Textile Industry (ATH:NAYP) Has A Fair Chunk Of Debt

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 Nafpaktos Textile Industry S.A. (ATH:NAYP) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Nafpaktos Textile Industry

What Is Nafpaktos Textile Industry's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Nafpaktos Textile Industry had €7.79m of debt, an increase on €5.95m, over one year. On the flip side, it has €1.50m in cash leading to net debt of about €6.29m.

How Healthy Is Nafpaktos Textile Industry's Balance Sheet?

We can see from the most recent balance sheet that Nafpaktos Textile Industry had liabilities of €5.78m falling due within a year, and liabilities of €5.72m due beyond that. Offsetting this, it had €1.50m in cash and €4.00m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €6.00m.

Nafpaktos Textile Industry has a market capitalization of €11.3m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Nafpaktos Textile Industry'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 Nafpaktos Textile Industry wasn't profitable at an EBIT level, but managed to grow its revenue by 9.2%, to €17m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Nafpaktos Textile Industry produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €995k. 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 €1.4m 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. Case in point: We've spotted 3 warning signs for Nafpaktos Textile Industry you should be aware of, and 1 of them can't be ignored.

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.