Health Check: How Prudently Does SITI - B&T Group (BIT:SITI) Use Debt?

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. As with many other companies SITI - B&T Group S.p.A. (BIT:SITI) makes use of debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

See our latest analysis for SITI - B&T Group

How Much Debt Does SITI - B&T Group Carry?

As you can see below, at the end of December 2020, SITI - B&T Group had €91.4m of debt, up from €50.3m a year ago. Click the image for more detail. On the flip side, it has €56.7m in cash leading to net debt of about €34.6m.

How Healthy Is SITI - B&T Group's Balance Sheet?

According to the last reported balance sheet, SITI - B&T Group had liabilities of €140.4m due within 12 months, and liabilities of €72.3m due beyond 12 months. Offsetting these obligations, it had cash of €56.7m as well as receivables valued at €90.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €65.5m.

This deficit casts a shadow over the €34.8m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, SITI - B&T Group would probably need a major re-capitalization if its creditors were to demand repayment. 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 SITI - B&T Group'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, SITI - B&T Group made a loss at the EBIT level, and saw its revenue drop to €142m, which is a fall of 19%. We would much prefer see growth.

Caveat Emptor

Not only did SITI - B&T Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable €12m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of €2.5m. And until that time we think this is a risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with SITI - B&T Group (including 1 which can't be ignored) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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