Is Proteak Uno. de (BMV:TEAKCPO) Using Debt In A Risky Way?

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.' 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, Proteak Uno, S.A.B. de C.V. (BMV:TEAKCPO) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Proteak Uno. de

What Is Proteak Uno. de's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Proteak Uno. de had Mex$2.28b of debt, an increase on Mex$1.93b, over one year. On the flip side, it has Mex$258.0m in cash leading to net debt of about Mex$2.02b.

A Look At Proteak Uno. de's Liabilities

According to the last reported balance sheet, Proteak Uno. de had liabilities of Mex$651.3m due within 12 months, and liabilities of Mex$2.65b due beyond 12 months. On the other hand, it had cash of Mex$258.0m and Mex$218.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$2.83b.

The deficiency here weighs heavily on the Mex$1.55b 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. When analysing debt levels, the balance sheet is the obvious place to start. 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$1.2b, which is a fall of 9.8%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Proteak Uno. de produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping Mex$210m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of Mex$404m. In the meantime, we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Proteak Uno. de (of which 1 is concerning!) you should know about.

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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