Does Askoll EVA (BIT:EVA) 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.' 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, Askoll EVA SpA (BIT:EVA) does carry debt. But the real question is whether this debt is making the company risky.

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Askoll EVA

How Much Debt Does Askoll EVA Carry?

As you can see below, at the end of June 2023, Askoll EVA had €11.7m of debt, up from €8.75m a year ago. Click the image for more detail. However, because it has a cash reserve of €2.01m, its net debt is less, at about €9.65m.

How Strong Is Askoll EVA's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Askoll EVA had liabilities of €11.8m due within 12 months and liabilities of €14.3m due beyond that. Offsetting these obligations, it had cash of €2.01m as well as receivables valued at €5.07m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €19.0m.

This deficit casts a shadow over the €11.6m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Askoll EVA would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Askoll EVA's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Askoll EVA made a loss at the EBIT level, and saw its revenue drop to €12m, which is a fall of 40%. To be frank that doesn't bode well.

Caveat Emptor

While Askoll EVA's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable €1.4m 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. Not least because it had negative free cash flow of €2.9m over the last twelve months. So suffice it to say we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Askoll EVA (of which 2 shouldn't be ignored!) you should know about.

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. 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.