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. As with many other companies Attica Holdings S.A. (ATH:ATTICA) makes use of debt. 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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Attica Holdings
How Much Debt Does Attica Holdings Carry?
You can click the graphic below for the historical numbers, but it shows that as of September 2022 Attica Holdings had €474.8m of debt, an increase on €436.3m, over one year. However, it also had €75.7m in cash, and so its net debt is €399.1m.
A Look At Attica Holdings' Liabilities
Zooming in on the latest balance sheet data, we can see that Attica Holdings had liabilities of €162.9m due within 12 months and liabilities of €474.8m due beyond that. Offsetting this, it had €75.7m in cash and €101.1m in receivables that were due within 12 months. So its liabilities total €460.9m more than the combination of its cash and short-term receivables.
When you consider that this deficiency exceeds the company's €426.2m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Attica Holdings 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 Attica Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 51%, to €499m. Shareholders probably have their fingers crossed that it can grow its way to profits.
Caveat Emptor
Despite the top line growth, Attica Holdings still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at €3.1m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. But on the bright side the company actually produced a statutory profit of €18m and free cash flow of €7.5m. So one might argue that there's still a chance it can get things on the right track. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 5 warning signs for Attica Holdings (3 are potentially serious!) 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.
About ATSE:ATTICA
Attica Holdings
Through its subsidiaries, provides passenger shipping and ferry services in Greece and internationally.
Slight unattractive dividend payer.