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

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. Importantly, Kiriacoulis Mediterranean Cruises Shipping SA (ATH:KYRI) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

See our latest analysis for Kiriacoulis Mediterranean Cruises Shipping

What Is Kiriacoulis Mediterranean Cruises Shipping's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2021 Kiriacoulis Mediterranean Cruises Shipping had debt of €9.17m, up from €8.32m in one year. However, because it has a cash reserve of €1.12m, its net debt is less, at about €8.05m.

How Strong Is Kiriacoulis Mediterranean Cruises Shipping's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kiriacoulis Mediterranean Cruises Shipping had liabilities of €21.6m due within 12 months and liabilities of €20.8m due beyond that. On the other hand, it had cash of €1.12m and €24.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €17.0m.

The deficiency here weighs heavily on the €8.54m 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, Kiriacoulis Mediterranean Cruises Shipping would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. 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.

Over 12 months, Kiriacoulis Mediterranean Cruises Shipping made a loss at the EBIT level, and saw its revenue drop to €21m, which is a fall of 22%. 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 €1.9m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of €2.4m over the last twelve months. 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. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Kiriacoulis Mediterranean Cruises Shipping (3 are potentially serious!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.