Is GO internet (BIT:GO) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that GO internet S.p.A. (BIT:GO) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for GO internet

How Much Debt Does GO internet Carry?

As you can see below, at the end of June 2022, GO internet had €9.03m of debt, up from €7.95m a year ago. Click the image for more detail. However, it also had €742.0k in cash, and so its net debt is €8.29m.

How Strong Is GO internet's Balance Sheet?

The latest balance sheet data shows that GO internet had liabilities of €9.51m due within a year, and liabilities of €6.63m falling due after that. Offsetting this, it had €742.0k in cash and €5.26m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €10.1m.

The deficiency here weighs heavily on the €5.39m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, GO internet would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since GO internet will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year GO internet wasn't profitable at an EBIT level, but managed to grow its revenue by 46%, to €11m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, GO internet still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €2.1m. 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. Not least because it had negative free cash flow of €509k over the last twelve months. That means it's on the risky side of things. 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. Case in point: We've spotted 3 warning signs for GO internet you should be aware of, and 2 of them are concerning.

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. 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.