Is Proteak Uno. de (BMV:TEAKCPO) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Proteak Uno, S.A.B. de C.V. (BMV:TEAKCPO) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Proteak Uno. de

How Much Debt Does Proteak Uno. de Carry?

The image below, which you can click on for greater detail, shows that Proteak Uno. de had debt of Mex$1.85b at the end of June 2023, a reduction from Mex$2.04b over a year. However, it also had Mex$78.0m in cash, and so its net debt is Mex$1.77b.

A Look At Proteak Uno. de's Liabilities

We can see from the most recent balance sheet that Proteak Uno. de had liabilities of Mex$902.4m falling due within a year, and liabilities of Mex$1.93b due beyond that. Offsetting these obligations, it had cash of Mex$78.0m as well as receivables valued at Mex$371.2m due within 12 months. So its liabilities total Mex$2.38b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the Mex$937.0m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Proteak Uno. de would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Proteak Uno. de 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 Proteak Uno. de had a loss before interest and tax, and actually shrunk its revenue by 24%, to Mex$1.6b. To be frank that doesn't bode well.

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. Indeed, it lost a very considerable Mex$146m at the EBIT level. 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$116m 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Proteak Uno. de you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.