Would Institut IGH d.d (ZGSE:IGH) Be Better Off With Less Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Institut IGH d.d. (ZGSE:IGH) makes use of debt. But is this debt a concern to shareholders?

We've discovered 4 warning signs about Institut IGH d.d. View them for free.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Institut IGH d.d Carry?

As you can see below, at the end of December 2024, Institut IGH d.d had €6.49m of debt, up from €4.61m a year ago. Click the image for more detail. On the flip side, it has €136.9k in cash leading to net debt of about €6.35m.

How Healthy Is Institut IGH d.d's Balance Sheet?

We can see from the most recent balance sheet that Institut IGH d.d had liabilities of €11.5m falling due within a year, and liabilities of €3.39m due beyond that. On the other hand, it had cash of €136.9k and €6.90m worth of receivables due within a year. So it has liabilities totalling €7.88m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Institut IGH d.d is worth €26.5m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Institut IGH d.d 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.

Check out our latest analysis for Institut IGH d.d

Over 12 months, Institut IGH d.d reported revenue of €17m, which is a gain of 4.8%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Institut IGH d.d produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €1.9m. 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 €1.5m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very 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 4 warning signs for Institut IGH d.d (of which 2 can't be ignored!) 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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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.