Stock Analysis

Is Brack Capital Properties (TLV:BCNV) Using Too Much Debt?

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Warren Buffett famously said, '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. Importantly, Brack Capital Properties N.V (TLV:BCNV) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 Brack Capital Properties

How Much Debt Does Brack Capital Properties Carry?

The image below, which you can click on for greater detail, shows that Brack Capital Properties had debt of €619.6m at the end of June 2023, a reduction from €791.0m over a year. However, because it has a cash reserve of €211.1m, its net debt is less, at about €408.5m.

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TASE:BCNV Debt to Equity History September 12th 2023

How Healthy Is Brack Capital Properties' Balance Sheet?

According to the last reported balance sheet, Brack Capital Properties had liabilities of €317.1m due within 12 months, and liabilities of €500.0m due beyond 12 months. Offsetting these obligations, it had cash of €211.1m as well as receivables valued at €2.95m due within 12 months. So its liabilities total €603.0m more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of €602.1m, we think shareholders really should watch Brack Capital Properties's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. 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 Brack Capital Properties will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Brack Capital Properties had a loss before interest and tax, and actually shrunk its revenue by 3.9%, to €80m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Brack Capital Properties produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €5.3m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of €238m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be 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. For example, we've discovered 3 warning signs for Brack Capital Properties that you should be aware of before investing here.

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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Find out whether Brack Capital Properties is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.