David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We note that Ktima Kostas Lazaridis S.A. (ATH:KTILA) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Ktima Kostas Lazaridis's Debt?
As you can see below, Ktima Kostas Lazaridis had €10.2m of debt at December 2020, down from €11.4m a year prior. On the flip side, it has €2.64m in cash leading to net debt of about €7.54m.
How Healthy Is Ktima Kostas Lazaridis' Balance Sheet?
We can see from the most recent balance sheet that Ktima Kostas Lazaridis had liabilities of €3.73m falling due within a year, and liabilities of €12.4m due beyond that. Offsetting this, it had €2.64m in cash and €4.04m in receivables that were due within 12 months. So it has liabilities totalling €9.46m more than its cash and near-term receivables, combined.
This deficit isn't so bad because Ktima Kostas Lazaridis is worth €27.0m, 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. There's no doubt that we learn most about debt from the balance sheet. But it is Ktima Kostas Lazaridis'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 Ktima Kostas Lazaridis had a loss before interest and tax, and actually shrunk its revenue by 6.2%, to €12m. We would much prefer see growth.
Over the last twelve months Ktima Kostas Lazaridis produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €417k at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €972k in negative free cash flow over the last twelve months. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Ktima Kostas Lazaridis 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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