Is Monnalisa (BIT:MNL) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that Monnalisa S.p.A. (BIT:MNL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Monnalisa Carry?

You can click the graphic below for the historical numbers, but it shows that Monnalisa had €13.7m of debt in December 2024, down from €16.9m, one year before. However, because it has a cash reserve of €1.19m, its net debt is less, at about €12.5m.

A Look At Monnalisa's Liabilities

Zooming in on the latest balance sheet data, we can see that Monnalisa had liabilities of €23.6m due within 12 months and liabilities of €16.1m due beyond that. On the other hand, it had cash of €1.19m and €5.28m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €33.2m.

This deficit casts a shadow over the €5.87m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Monnalisa 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 Monnalisa'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.

View our latest analysis for Monnalisa

Over 12 months, Monnalisa made a loss at the EBIT level, and saw its revenue drop to €36m, which is a fall of 15%. We would much prefer see growth.

Caveat Emptor

While Monnalisa'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 €4.3m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of €6.1m in the last year. So while it's not wise to assume the company will fail, we do think it's risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Monnalisa (of which 1 is concerning!) you should know about.

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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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.