Is Giglio.com (BIT:GCOM) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Giglio.com S.p.A. (BIT:GCOM) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Giglio.com

How Much Debt Does Giglio.com Carry?

You can click the graphic below for the historical numbers, but it shows that Giglio.com had €1.41m of debt in December 2023, down from €2.10m, one year before. But it also has €5.19m in cash to offset that, meaning it has €3.78m net cash.

A Look At Giglio.com's Liabilities

According to the last reported balance sheet, Giglio.com had liabilities of €6.89m due within 12 months, and liabilities of €2.45m due beyond 12 months. Offsetting these obligations, it had cash of €5.19m as well as receivables valued at €5.08m due within 12 months. So it can boast €924.5k more liquid assets than total liabilities.

This surplus suggests that Giglio.com has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Giglio.com boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Giglio.com can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Giglio.com wasn't profitable at an EBIT level, but managed to grow its revenue by 7.9%, to €57m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Giglio.com?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Giglio.com had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €3.9m and booked a €1.7m accounting loss. However, it has net cash of €3.78m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Giglio.com you should know about.

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.