Is Turisthotel d.d (ZGSE:TUHO) A Risky Investment?

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.' 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. As with many other companies Turisthotel d.d. (ZGSE:TUHO) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Turisthotel d.d

How Much Debt Does Turisthotel d.d Carry?

As you can see below, Turisthotel d.d had Kn204.4m of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. However, it does have Kn269.8m in cash offsetting this, leading to net cash of Kn65.5m.

How Strong Is Turisthotel d.d's Balance Sheet?

The latest balance sheet data shows that Turisthotel d.d had liabilities of Kn22.4m due within a year, and liabilities of Kn201.0m falling due after that. Offsetting this, it had Kn269.8m in cash and Kn92.0m in receivables that were due within 12 months. So it actually has Kn138.5m more liquid assets than total liabilities.

This surplus suggests that Turisthotel d.d has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Turisthotel d.d has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Turisthotel 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 Turisthotel d.d had a loss before interest and tax, and actually shrunk its revenue by 52%, to Kn138m. That makes us nervous, to say the least.

So How Risky Is Turisthotel d.d?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Turisthotel d.d had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through Kn47m of cash and made a loss of Kn21m. With only Kn65.5m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. For example, we've discovered 3 warning signs for Turisthotel d.d (2 are significant!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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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