Does Envipco Holding (AMS:ENVI) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, Envipco Holding N.V. (AMS:ENVI) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Envipco Holding

What Is Envipco Holding's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2023 Envipco Holding had debt of €20.2m, up from €13.7m in one year. However, because it has a cash reserve of €4.01m, its net debt is less, at about €16.2m.

How Strong Is Envipco Holding's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Envipco Holding had liabilities of €30.8m due within 12 months and liabilities of €19.0m due beyond that. On the other hand, it had cash of €4.01m and €25.5m worth of receivables due within a year. So its liabilities total €20.2m more than the combination of its cash and short-term receivables.

Of course, Envipco Holding has a market capitalization of €169.5m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Envipco Holding'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 Envipco Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to €66m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Envipco Holding had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at €3.8m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €17m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very 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. Be aware that Envipco Holding is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.