These 4 Measures Indicate That Alfio Bardolla Training Group (BIT:ABTG) Is Using Debt Reasonably Well

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Alfio Bardolla Training Group S.p.A. (BIT:ABTG) does use debt in its business. But is this debt a concern to shareholders?

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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Alfio Bardolla Training Group

What Is Alfio Bardolla Training Group's Debt?

As you can see below, at the end of June 2021, Alfio Bardolla Training Group had €1.46m of debt, up from €710.9k a year ago. Click the image for more detail. However, it does have €2.43m in cash offsetting this, leading to net cash of €970.5k.

A Look At Alfio Bardolla Training Group's Liabilities

We can see from the most recent balance sheet that Alfio Bardolla Training Group had liabilities of €4.61m falling due within a year, and liabilities of €2.77m due beyond that. On the other hand, it had cash of €2.43m and €1.48m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €3.46m.

Given Alfio Bardolla Training Group has a market capitalization of €17.8m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Alfio Bardolla Training Group boasts net cash, so it's fair to say it does not have a heavy debt load!

It was also good to see that despite losing money on the EBIT line last year, Alfio Bardolla Training Group turned things around in the last 12 months, delivering and EBIT of €2.0m. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Alfio Bardolla Training Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Alfio Bardolla Training Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent year, Alfio Bardolla Training Group recorded free cash flow of 35% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing up

While Alfio Bardolla Training Group does have more liabilities than liquid assets, it also has net cash of €970.5k. So we are not troubled with Alfio Bardolla Training Group's debt use. 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. For example - Alfio Bardolla Training Group has 1 warning sign we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.

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