Is Kiriacoulis Mediterranean Cruises Shipping (ATH:KYRI) Weighed On By Its Debt Load?

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 can see that Kiriacoulis Mediterranean Cruises Shipping SA (ATH:KYRI) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

View our latest analysis for Kiriacoulis Mediterranean Cruises Shipping

What Is Kiriacoulis Mediterranean Cruises Shipping's Debt?

As you can see below, at the end of December 2020, Kiriacoulis Mediterranean Cruises Shipping had €18.0m of debt, up from €4.88m a year ago. Click the image for more detail. On the flip side, it has €1.14m in cash leading to net debt of about €16.9m.

A Look At Kiriacoulis Mediterranean Cruises Shipping's Liabilities

Zooming in on the latest balance sheet data, we can see that Kiriacoulis Mediterranean Cruises Shipping had liabilities of €16.2m due within 12 months and liabilities of €20.3m due beyond that. Offsetting this, it had €1.14m in cash and €21.3m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €14.0m.

When you consider that this deficiency exceeds the company's €10.3m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Kiriacoulis Mediterranean Cruises Shipping 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.

In the last year Kiriacoulis Mediterranean Cruises Shipping had a loss before interest and tax, and actually shrunk its revenue by 23%, to €27m. To be frank that doesn't bode well.

Caveat Emptor

While Kiriacoulis Mediterranean Cruises Shipping's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping €5.0m. 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. Not least because it burned through €4.9m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Kiriacoulis Mediterranean Cruises Shipping (of which 1 is concerning!) you should know about.

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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