Is Compagnia Immobiliare Azionaria (BIT:CIA) 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. We note that Compagnia Immobiliare Azionaria S.p.A. (BIT:CIA) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Compagnia Immobiliare Azionaria

What Is Compagnia Immobiliare Azionaria's Net Debt?

As you can see below, Compagnia Immobiliare Azionaria had €2.83m of debt at June 2021, down from €6.51m a year prior. And it doesn't have much cash, so its net debt is about the same.

A Look At Compagnia Immobiliare Azionaria's Liabilities

According to the last reported balance sheet, Compagnia Immobiliare Azionaria had liabilities of €9.58m due within 12 months, and liabilities of €353.0k due beyond 12 months. Offsetting this, it had €44.0k in cash and €3.83m in receivables that were due within 12 months. So its liabilities total €6.06m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €7.18m, so it does suggest shareholders should keep an eye on Compagnia Immobiliare Azionaria's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But it is Compagnia Immobiliare Azionaria's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Compagnia Immobiliare Azionaria made a loss at the EBIT level, and saw its revenue drop to €1.6m, which is a fall of 24%. That makes us nervous, to say the least.

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 €1.6m. 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. For example, we would not want to see a repeat of last year's loss of €1.9m. In the meantime, we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Compagnia Immobiliare Azionaria (including 2 which are potentially serious) .

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.

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.

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