Does Landi Renzo (BIT:LR) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Landi Renzo S.p.A. (BIT:LR) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Landi Renzo

How Much Debt Does Landi Renzo Carry?

As you can see below, at the end of December 2020, Landi Renzo had €92.5m of debt, up from €80.7m a year ago. Click the image for more detail. On the flip side, it has €21.9m in cash leading to net debt of about €70.6m.

How Healthy Is Landi Renzo's Balance Sheet?

The latest balance sheet data shows that Landi Renzo had liabilities of €86.9m due within a year, and liabilities of €76.7m falling due after that. On the other hand, it had cash of €21.9m and €48.5m worth of receivables due within a year. So its liabilities total €93.2m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €116.8m, so it does suggest shareholders should keep an eye on Landi Renzo's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Landi Renzo can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Landi Renzo made a loss at the EBIT level, and saw its revenue drop to €142m, which is a fall of 26%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Landi Renzo's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at €4.5m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €5.6m of cash over the last year. So to be blunt we think it is risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Landi Renzo's profit, revenue, and operating cashflow have changed over the last few years.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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