Does Aeffe (BIT:AEF) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Aeffe S.p.A. (BIT:AEF) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Aeffe Carry?

As you can see below, Aeffe had €108.3m of debt at June 2025, down from €149.1m a year prior. However, it does have €12.6m in cash offsetting this, leading to net debt of about €95.7m.

A Look At Aeffe's Liabilities

The latest balance sheet data shows that Aeffe had liabilities of €201.2m due within a year, and liabilities of €88.9m falling due after that. On the other hand, it had cash of €12.6m and €65.6m worth of receivables due within a year. So it has liabilities totalling €211.9m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the €23.0m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Aeffe 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 Aeffe'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.

See our latest analysis for Aeffe

In the last year Aeffe had a loss before interest and tax, and actually shrunk its revenue by 23%, to €233m. That makes us nervous, to say the least.

Caveat Emptor

While Aeffe'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 €37m at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But we note that trailing twelve month EBIT is worse than the free cash flow of €68m and the profit of €11m. So while its ongoing EBIT might disappoint, it has a fair bit going for it! 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 Aeffe (of which 3 make us uncomfortable!) you should know about.

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.