Does Toscana Aeroporti (BIT:TYA) Have A Healthy Balance Sheet?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Toscana Aeroporti S.p.A. (BIT:TYA) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Toscana Aeroporti

How Much Debt Does Toscana Aeroporti Carry?

As you can see below, at the end of September 2020, Toscana Aeroporti had €65.5m of debt, up from €55.2m a year ago. Click the image for more detail. However, it does have €6.28m in cash offsetting this, leading to net debt of about €59.3m.

A Look At Toscana Aeroporti's Liabilities

Zooming in on the latest balance sheet data, we can see that Toscana Aeroporti had liabilities of €98.5m due within 12 months and liabilities of €50.0m due beyond that. Offsetting this, it had €6.28m in cash and €27.3m in receivables that were due within 12 months. So its liabilities total €114.9m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Toscana Aeroporti has a market capitalization of €261.5m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Toscana Aeroporti'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.

In the last year Toscana Aeroporti had a loss before interest and tax, and actually shrunk its revenue by 45%, to €70m. That makes us nervous, to say the least.

Caveat Emptor

While Toscana Aeroporti's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €13m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €21m of cash over the last year. So in short it's a really 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. Be aware that Toscana Aeroporti is showing 1 warning sign in our investment analysis , you should know about...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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