Stock Analysis

Is Beghelli (BIT:BE) Using Too Much Debt?

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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.' 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. We can see that Beghelli S.p.A. (BIT:BE) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Beghelli

What Is Beghelli's Debt?

As you can see below, Beghelli had €53.0m of debt at December 2022, down from €59.2m a year prior. However, it also had €20.2m in cash, and so its net debt is €32.8m.

BIT:BE Debt to Equity History March 31st 2023

How Healthy Is Beghelli's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Beghelli had liabilities of €44.9m due within 12 months and liabilities of €17.0m due beyond that. Offsetting these obligations, it had cash of €20.2m as well as receivables valued at €2.30m due within 12 months. So its liabilities total €39.4m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €54.2m, so it does suggest shareholders should keep an eye on Beghelli's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Beghelli'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, Beghelli made a loss at the EBIT level, and saw its revenue drop to €146m, which is a fall of 2.2%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Beghelli produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €3.1m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €12m of cash over the last year. So suffice it to say we consider the stock very 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. To that end, you should be aware of the 1 warning sign we've spotted with Beghelli .

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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