Is Società Editoriale Il Fatto (BIT:SEIF) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Società Editoriale Il Fatto S.p.A. (BIT:SEIF) makes use of debt. 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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Società Editoriale Il Fatto

What Is Società Editoriale Il Fatto's Debt?

As you can see below, at the end of December 2020, Società Editoriale Il Fatto had €2.49m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has €3.86m in cash, leading to a €1.37m net cash position.

How Strong Is Società Editoriale Il Fatto's Balance Sheet?

The latest balance sheet data shows that Società Editoriale Il Fatto had liabilities of €8.44m due within a year, and liabilities of €6.82m falling due after that. Offsetting these obligations, it had cash of €3.86m as well as receivables valued at €5.97m due within 12 months. So it has liabilities totalling €5.42m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Società Editoriale Il Fatto is worth €14.0m, and thus could probably raise enough capital to shore up 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. Despite its noteworthy liabilities, Società Editoriale Il Fatto 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 ultimately the future profitability of the business will decide if Società Editoriale Il Fatto can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Società Editoriale Il Fatto reported revenue of €37m, which is a gain of 19%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Società Editoriale Il Fatto?

Although Società Editoriale Il Fatto had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of €301k. 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. We've identified 5 warning signs with Società Editoriale Il Fatto (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. 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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