Is F.I.L.A. - Fabbrica Italiana Lapis ed Affini (BIT:FILA) A Risky Investment?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, F.I.L.A. - Fabbrica Italiana Lapis ed Affini S.p.A. (BIT:FILA) does carry debt. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

What Is F.I.L.A. - Fabbrica Italiana Lapis ed Affini's Net Debt?

You can click the graphic below for the historical numbers, but it shows that F.I.L.A. - Fabbrica Italiana Lapis ed Affini had €302.9m of debt in March 2025, down from €433.6m, one year before. However, because it has a cash reserve of €129.5m, its net debt is less, at about €173.5m.

How Healthy Is F.I.L.A. - Fabbrica Italiana Lapis ed Affini's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that F.I.L.A. - Fabbrica Italiana Lapis ed Affini had liabilities of €158.5m due within 12 months and liabilities of €381.8m due beyond that. Offsetting these obligations, it had cash of €129.5m as well as receivables valued at €133.3m due within 12 months. So its liabilities total €277.6m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €439.3m, so it does suggest shareholders should keep an eye on F.I.L.A. - Fabbrica Italiana Lapis ed Affini's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.

Check out our latest analysis for F.I.L.A. - Fabbrica Italiana Lapis ed Affini

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

F.I.L.A. - Fabbrica Italiana Lapis ed Affini's net debt is sitting at a very reasonable 1.6 times its EBITDA, while its EBIT covered its interest expense just 2.9 times last year. While that doesn't worry us too much, it does suggest the interest payments are somewhat of a burden. Unfortunately, F.I.L.A. - Fabbrica Italiana Lapis ed Affini's EBIT flopped 13% over the last four quarters. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. 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 F.I.L.A. - Fabbrica Italiana Lapis ed Affini's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, F.I.L.A. - Fabbrica Italiana Lapis ed Affini generated free cash flow amounting to a very robust 92% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Our View

F.I.L.A. - Fabbrica Italiana Lapis ed Affini's EBIT growth rate and interest cover definitely weigh on it, in our esteem. But the good news is it seems to be able to convert EBIT to free cash flow with ease. Looking at all the angles mentioned above, it does seem to us that F.I.L.A. - Fabbrica Italiana Lapis ed Affini is a somewhat risky investment as a result of its debt. That's not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 4 warning signs with F.I.L.A. - Fabbrica Italiana Lapis ed Affini (at least 1 which is concerning) , and understanding them should be part of your investment process.

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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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.