Health Check: How Prudently Does Datrix (BIT:DATA) Use Debt?

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. Importantly, Datrix S.p.A. (BIT:DATA) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Datrix

How Much Debt Does Datrix Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Datrix had debt of €4.89m, up from €3.44m in one year. However, it does have €6.04m in cash offsetting this, leading to net cash of €1.15m.

How Healthy Is Datrix's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Datrix had liabilities of €10.8m due within 12 months and liabilities of €7.26m due beyond that. Offsetting these obligations, it had cash of €6.04m as well as receivables valued at €9.08m due within 12 months. So its liabilities total €2.92m more than the combination of its cash and short-term receivables.

Given Datrix has a market capitalization of €19.1m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Datrix boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Datrix will need earnings to service that debt. 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 Datrix had a loss before interest and tax, and actually shrunk its revenue by 2.1%, to €19m. That's not what we would hope to see.

So How Risky Is Datrix?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Datrix had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €3.3m and booked a €2.6m accounting loss. But at least it has €1.15m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. To that end, you should learn about the 2 warning signs we've spotted with Datrix (including 1 which is significant) .

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.