Is Compagnia Immobiliare Azionaria (BIT:CIA) Weighed On By Its Debt Load?

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. Importantly, Compagnia Immobiliare Azionaria S.p.A. (BIT:CIA) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. 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 Debt?

The image below, which you can click on for greater detail, shows that Compagnia Immobiliare Azionaria had debt of €2.81m at the end of December 2020, a reduction from €5.87m over a year. Net debt is about the same, since the it doesn't have much cash.

A Look At Compagnia Immobiliare Azionaria's Liabilities

Zooming in on the latest balance sheet data, we can see that Compagnia Immobiliare Azionaria had liabilities of €9.39m due within 12 months and liabilities of €86.0k due beyond that. Offsetting these obligations, it had cash of €3.0k as well as receivables valued at €3.73m due within 12 months. So it has liabilities totalling €5.74m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's €4.00m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. 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.

In the last year Compagnia Immobiliare Azionaria had a loss before interest and tax, and actually shrunk its revenue by 35%, to €1.8m. 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). Indeed, it lost a very considerable €939k 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 €1.3m. And until that time we think this is a risky stock. 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. We've identified 3 warning signs with Compagnia Immobiliare Azionaria (at least 2 which are concerning) , and understanding them should be part of your investment process.

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.

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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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