Does Compagnia Immobiliare Azionaria (BIT:CIA) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that Compagnia Immobiliare Azionaria S.p.A. (BIT:CIA) does have debt on its balance sheet. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Compagnia Immobiliare Azionaria

What Is Compagnia Immobiliare Azionaria's Net Debt?

As you can see below, at the end of December 2021, Compagnia Immobiliare Azionaria had €2.99m of debt, up from €2.81m a year ago. Click the image for more detail. And it doesn't have much cash, so its net debt is about the same.

How Healthy Is Compagnia Immobiliare Azionaria's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Compagnia Immobiliare Azionaria had liabilities of €9.24m due within 12 months and liabilities of €904.0k due beyond that. On the other hand, it had cash of €27.0k and €4.71m worth of receivables due within a year. So it has liabilities totalling €5.41m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of €7.09m, so it does suggest shareholders should keep an eye on Compagnia Immobiliare Azionaria's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is Compagnia Immobiliare Azionaria'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.

Given it has no significant operating revenue at the moment, shareholders will be hoping Compagnia Immobiliare Azionaria can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Not only did Compagnia Immobiliare Azionaria's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping €1.4m. 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 €2.1m of cash over the last year. So suffice it to say we consider the stock very risky. 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, we've discovered 4 warning signs for Compagnia Immobiliare Azionaria that you should be aware of before investing here.

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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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.