Here's Why Mondo TV France Société Anonyme (BIT:MTF) Can Afford Some Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Mondo TV France Société Anonyme (BIT:MTF) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Mondo TV France Société Anonyme

What Is Mondo TV France Société Anonyme's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Mondo TV France Société Anonyme had €1.85m of debt, an increase on €1.53m, over one year. However, because it has a cash reserve of €542.0k, its net debt is less, at about €1.31m.

How Healthy Is Mondo TV France Société Anonyme's Balance Sheet?

According to the balance sheet data, Mondo TV France Société Anonyme had liabilities of €7.39m due within 12 months, but no longer term liabilities. Offsetting these obligations, it had cash of €542.0k as well as receivables valued at €3.78m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €3.08m.

Mondo TV France Société Anonyme has a market capitalization of €6.83m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is Mondo TV France Société Anonyme's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Mondo TV France Société Anonyme had a loss before interest and tax, and actually shrunk its revenue by 6.6%, to €4.5m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Mondo TV France Société Anonyme produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €26k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €864k of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Mondo TV France Société Anonyme you should be aware of, and 1 of them doesn't sit too well with us.

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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