Is Società Editoriale Il Fatto (BIT:SEIF) Using Debt In A Risky Way?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 can see that Società Editoriale Il Fatto S.p.A. (BIT:SEIF) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Società Editoriale Il Fatto

What Is Società Editoriale Il Fatto's Net Debt?

As you can see below, at the end of December 2023, Società Editoriale Il Fatto had €3.86m of debt, up from €2.02m a year ago. Click the image for more detail. However, it does have €429.9k in cash offsetting this, leading to net debt of about €3.43m.

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

We can see from the most recent balance sheet that Società Editoriale Il Fatto had liabilities of €11.5m falling due within a year, and liabilities of €4.30m due beyond that. Offsetting this, it had €429.9k in cash and €2.66m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €12.7m.

This deficit casts a shadow over the €7.22m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Società Editoriale Il Fatto would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Società Editoriale Il Fatto's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Società Editoriale Il Fatto's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months Società Editoriale Il Fatto produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable €3.1m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of €2.4m. And until that time we think this is a risky stock. 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. For instance, we've identified 2 warning signs for Società Editoriale Il Fatto that you should be aware of.

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. 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.