Does Iktinos Hellas Greek Marble Industry Technical and Touristic (ATH:IKTIN) Have A Healthy Balance Sheet?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Iktinos Hellas S.A. Greek Marble Industry Technical and Touristic Company (ATH:IKTIN) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Iktinos Hellas Greek Marble Industry Technical and Touristic

How Much Debt Does Iktinos Hellas Greek Marble Industry Technical and Touristic Carry?

The image below, which you can click on for greater detail, shows that at June 2023 Iktinos Hellas Greek Marble Industry Technical and Touristic had debt of €47.4m, up from €42.8m in one year. And it doesn't have much cash, so its net debt is about the same.

How Healthy Is Iktinos Hellas Greek Marble Industry Technical and Touristic's Balance Sheet?

We can see from the most recent balance sheet that Iktinos Hellas Greek Marble Industry Technical and Touristic had liabilities of €40.2m falling due within a year, and liabilities of €34.7m due beyond that. On the other hand, it had cash of €773.4k and €13.2m worth of receivables due within a year. So it has liabilities totalling €60.9m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's €55.7m 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. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Iktinos Hellas Greek Marble Industry Technical and Touristic 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 Iktinos Hellas Greek Marble Industry Technical and Touristic had a loss before interest and tax, and actually shrunk its revenue by 6.4%, to €30m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Iktinos Hellas Greek Marble Industry Technical and Touristic produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €186k. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through €838k in negative free cash flow over the last year. That means it's on the risky side of things. 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. For example, we've discovered 4 warning signs for Iktinos Hellas Greek Marble Industry Technical and Touristic (2 make us uncomfortable!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.