Is Caltagirone Editore (BIT:CED) Weighed On By Its Debt Load?

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. As with many other companies Caltagirone Editore SpA (BIT:CED) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Caltagirone Editore

What Is Caltagirone Editore's Net Debt?

The chart below, which you can click on for greater detail, shows that Caltagirone Editore had €8.15m in debt in December 2023; about the same as the year before. But on the other hand it also has €34.2m in cash, leading to a €26.1m net cash position.

How Healthy Is Caltagirone Editore's Balance Sheet?

We can see from the most recent balance sheet that Caltagirone Editore had liabilities of €60.5m falling due within a year, and liabilities of €39.5m due beyond that. Offsetting this, it had €34.2m in cash and €39.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €25.9m.

Since publicly traded Caltagirone Editore shares are worth a total of €149.0m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Caltagirone Editore boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Caltagirone Editore will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Caltagirone Editore made a loss at the EBIT level, and saw its revenue drop to €111m, which is a fall of 2.3%. That's not what we would hope to see.

So How Risky Is Caltagirone Editore?

While Caltagirone Editore lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of €16m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. To that end, you should be aware of the 1 warning sign we've spotted with Caltagirone Editore .

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.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com