Does Losinjska Plovidba Holding d.d (ZGSE:LPLH) Have A Healthy Balance Sheet?

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.' 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. Importantly, Losinjska Plovidba Holding d.d. (ZGSE:LPLH) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Losinjska Plovidba Holding d.d

How Much Debt Does Losinjska Plovidba Holding d.d Carry?

The image below, which you can click on for greater detail, shows that at June 2021 Losinjska Plovidba Holding d.d had debt of Kn36.6m, up from Kn32.1m in one year. However, it also had Kn25.0m in cash, and so its net debt is Kn11.6m.

How Strong Is Losinjska Plovidba Holding d.d's Balance Sheet?

We can see from the most recent balance sheet that Losinjska Plovidba Holding d.d had liabilities of Kn20.6m falling due within a year, and liabilities of Kn34.7m due beyond that. Offsetting these obligations, it had cash of Kn25.0m as well as receivables valued at Kn9.28m due within 12 months. So its liabilities total Kn21.0m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Losinjska Plovidba Holding d.d has a market capitalization of Kn87.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Losinjska Plovidba Holding d.d's earnings that will influence how the balance sheet holds up in the future. 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 Losinjska Plovidba Holding d.d's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, Losinjska Plovidba Holding d.d had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at Kn514k. 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. However, it doesn't help that it burned through Kn8.5m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with Losinjska Plovidba Holding d.d .

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.

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.

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