Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Kekrops S.A. (ATH:KEKR) does carry debt. But the real question is whether this debt is making the company risky.
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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Kekrops
What Is Kekrops's Debt?
As you can see below, at the end of June 2021, Kekrops had €4.93m of debt, up from €3.33m a year ago. Click the image for more detail. However, it does have €1.11m in cash offsetting this, leading to net debt of about €3.82m.
A Look At Kekrops' Liabilities
Zooming in on the latest balance sheet data, we can see that Kekrops had liabilities of €217.1k due within 12 months and liabilities of €5.20m due beyond that. On the other hand, it had cash of €1.11m and €598.3k worth of receivables due within a year. So it has liabilities totalling €3.71m more than its cash and near-term receivables, combined.
Since publicly traded Kekrops shares are worth a total of €46.1m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. 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.
It seems likely shareholders hope that Kekrops can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.
Caveat Emptor
Not only did Kekrops's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at €569k. 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 €561k 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 2 warning signs for Kekrops (of which 1 doesn't sit too well with us!) you should know about.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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Access Free AnalysisThis 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.
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About ATSE:KEKR
Kekrops
Engages in the development, construction, and exploitation of real estate properties with a focus on maisonettes and luxury homes in Greece.
Slight with mediocre balance sheet.