Proteak Uno. de (BMV:TEAKCPO) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that Proteak Uno, S.A.B. de C.V. (BMV:TEAKCPO) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Proteak Uno. de had Mex$2.06b of debt, an increase on Mex$1.88b, over one year. On the flip side, it has Mex$581.9m in cash leading to net debt of about Mex$1.48b.

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$664.8m due within 12 months and liabilities of Mex$2.30b due beyond that. Offsetting these obligations, it had cash of Mex$581.9m as well as receivables valued at Mex$164.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Mex$2.21b.

When you consider that this deficiency exceeds the company's Mex$2.15b market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. 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 if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Proteak Uno. de saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, Proteak Uno. de had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at Mex$60m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of Mex$196m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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. For example Proteak Uno. de has 3 warning signs (and 1 which doesn't sit too well with us) we think 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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This article by Simply Wall St is general in nature. 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.
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