Would AATECH. Società Benefit (BIT:AAT) Be Better Off With Less Debt?

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.' 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. As with many other companies AATECH S.p.A. Società Benefit (BIT:AAT) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for AATECH. Società Benefit

What Is AATECH. Società Benefit's Debt?

The image below, which you can click on for greater detail, shows that at December 2023 AATECH. Società Benefit had debt of €4.13m, up from €3.66m in one year. However, it also had €447.0k in cash, and so its net debt is €3.69m.

How Strong Is AATECH. Società Benefit's Balance Sheet?

We can see from the most recent balance sheet that AATECH. Società Benefit had liabilities of €1.02m falling due within a year, and liabilities of €4.40m due beyond that. On the other hand, it had cash of €447.0k and €101.0k worth of receivables due within a year. So it has liabilities totalling €4.87m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of €6.99m, so it does suggest shareholders should keep an eye on AATECH. Società Benefit's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine AATECH. Società Benefit's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, AATECH. Società Benefit made a loss at the EBIT level, and saw its revenue drop to €1.1m, which is a fall of 31%. That makes us nervous, to say the least.

Caveat Emptor

While AATECH. Società Benefit's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable €913k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of €227k into a profit. So we do think this stock is quite risky. 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 example, we've discovered 5 warning signs for AATECH. Società Benefit (2 are potentially serious!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.

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