Envipco Holding (AMS:ENVI) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Envipco Holding N.V. (AMS:ENVI) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Envipco Holding

What Is Envipco Holding's Debt?

The image below, which you can click on for greater detail, shows that at June 2023 Envipco Holding had debt of €20.4m, up from €13.6m in one year. On the flip side, it has €7.19m in cash leading to net debt of about €13.2m.

A Look At Envipco Holding's Liabilities

The latest balance sheet data shows that Envipco Holding had liabilities of €30.0m due within a year, and liabilities of €19.2m falling due after that. Offsetting these obligations, it had cash of €7.19m as well as receivables valued at €18.2m due within 12 months. So its liabilities total €23.9m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Envipco Holding is worth €103.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Envipco Holding can strengthen its balance sheet over time. 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 19%, to €57m. 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 €6.8m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 €18m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. For instance, we've identified 3 warning signs for Envipco Holding (1 is a bit concerning) you should be aware of.

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.