Does Proteak Uno. de (BMV:TEAKCPO) Have A Healthy Balance Sheet?

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.' 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. As with many other companies Proteak Uno, S.A.B. de C.V. (BMV:TEAKCPO) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. 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 Proteak Uno. de

How Much Debt Does Proteak Uno. de Carry?

You can click the graphic below for the historical numbers, but it shows that Proteak Uno. de had Mex$1.82b of debt in December 2023, down from Mex$2.10b, one year before. However, because it has a cash reserve of Mex$81.3m, its net debt is less, at about Mex$1.74b.

How Strong Is Proteak Uno. de's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Proteak Uno. de had liabilities of Mex$1.03b due within 12 months and liabilities of Mex$2.00b due beyond that. Offsetting these obligations, it had cash of Mex$81.3m as well as receivables valued at Mex$299.6m due within 12 months. So it has liabilities totalling Mex$2.65b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the Mex$572.8m 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'd watch its balance sheet closely, without a doubt. At the end of the day, Proteak Uno. de would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Proteak Uno. de's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Proteak Uno. de made a loss at the EBIT level, and saw its revenue drop to Mex$1.4b, which is a fall of 27%. That makes us nervous, to say the least.

Caveat Emptor

While Proteak Uno. de's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping Mex$193m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized Mex$56m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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. Be aware that Proteak Uno. de is showing 3 warning signs in our investment analysis , and 1 of those is a bit concerning...

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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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.