Kekrops (ATH:KEKR) Is Carrying A Fair Bit Of Debt

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. We note that Kekrops S.A. (ATH:KEKR) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've discovered 3 warning signs about Kekrops. View them for free.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Kekrops's Net Debt?

The image below, which you can click on for greater detail, shows that Kekrops had debt of €2.52m at the end of December 2024, a reduction from €5.50m over a year. However, it does have €189.6k in cash offsetting this, leading to net debt of about €2.33m.

How Healthy Is Kekrops' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kekrops had liabilities of €658.0k due within 12 months and liabilities of €4.73m due beyond that. Offsetting this, it had €189.6k in cash and €218.6k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €4.98m.

Since publicly traded Kekrops shares are worth a total of €25.2m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Kekrops 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.

View our latest analysis for Kekrops

In the last year Kekrops wasn't profitable at an EBIT level, but managed to grow its revenue by 30,301%, to €4.0m. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

Despite the top line growth, Kekrops still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €1.1m 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 €1.1m in negative free cash flow over the last twelve months. So suffice it to say we do 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. We've identified 3 warning signs with Kekrops , and understanding them should be part of your investment process.

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.