We Think Helios Faros d.d (ZGSE:HEFA) Has A Fair Chunk Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Helios Faros d.d. (ZGSE:HEFA) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Helios Faros d.d

What Is Helios Faros d.d's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Helios Faros d.d had €12.2m of debt, an increase on €2.66m, over one year. On the flip side, it has €4.09m in cash leading to net debt of about €8.13m.

A Look At Helios Faros d.d's Liabilities

We can see from the most recent balance sheet that Helios Faros d.d had liabilities of €3.18m falling due within a year, and liabilities of €12.4m due beyond that. Offsetting this, it had €4.09m in cash and €6.52m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €4.95m.

Of course, Helios Faros d.d has a market capitalization of €48.2m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Helios Faros 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.

In the last year Helios Faros d.d wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to €12m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Helios Faros d.d managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost €2.6m 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled €9.8m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Helios Faros d.d is showing 4 warning signs in our investment analysis , and 2 of those are significant...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.