Health Check: How Prudently Does Azerion Group (AMS:AZRN) Use Debt?

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. We can see that Azerion Group N.V. (AMS:AZRN) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Azerion Group

What Is Azerion Group's Debt?

As you can see below, at the end of September 2024, Azerion Group had €229.1m of debt, up from €206.8m a year ago. Click the image for more detail. On the flip side, it has €68.3m in cash leading to net debt of about €160.8m.

A Look At Azerion Group's Liabilities

We can see from the most recent balance sheet that Azerion Group had liabilities of €298.2m falling due within a year, and liabilities of €269.5m due beyond that. Offsetting this, it had €68.3m in cash and €180.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €318.7m.

This deficit casts a shadow over the €122.6m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Azerion Group would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Azerion Group 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 Azerion Group wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to €555m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Azerion Group had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable €74m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of €48m in the last year. So we think this stock is quite risky. We'd prefer to pass. 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. We've identified 1 warning sign with Azerion Group , and understanding them should be part of your investment process.

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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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.