Does Imperial Riviera d.d (ZGSE:HIMR) Have A Healthy Balance Sheet?

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.' 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. We note that Imperial Riviera d.d. (ZGSE:HIMR) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Imperial Riviera d.d

What Is Imperial Riviera d.d's Debt?

The chart below, which you can click on for greater detail, shows that Imperial Riviera d.d had Kn289.5m in debt in March 2021; about the same as the year before. On the flip side, it has Kn126.9m in cash leading to net debt of about Kn162.5m.

How Healthy Is Imperial Riviera d.d's Balance Sheet?

According to the last reported balance sheet, Imperial Riviera d.d had liabilities of Kn65.2m due within 12 months, and liabilities of Kn293.1m due beyond 12 months. Offsetting this, it had Kn126.9m in cash and Kn4.91m in receivables that were due within 12 months. So it has liabilities totalling Kn226.4m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Imperial Riviera d.d is worth Kn1.05b, 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. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Imperial Riviera 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.

Over 12 months, Imperial Riviera d.d made a loss at the EBIT level, and saw its revenue drop to Kn90m, which is a fall of 65%. To be frank that doesn't bode well.

Caveat Emptor

While Imperial Riviera d.d's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at Kn67m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled Kn110m 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. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Imperial Riviera d.d you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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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