Is Azerion Group (AMS:AZRN) Using Debt Sensibly?

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.' 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. As with many other companies Azerion Group N.V. (AMS:AZRN) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Azerion Group's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Azerion Group had €275.2m of debt, an increase on €170.3m, over one year. However, it also had €90.6m in cash, and so its net debt is €184.6m.

A Look At Azerion Group's Liabilities

According to the last reported balance sheet, Azerion Group had liabilities of €320.0m due within 12 months, and liabilities of €310.9m due beyond 12 months. Offsetting these obligations, it had cash of €90.6m as well as receivables valued at €209.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €331.3m.

This deficit casts a shadow over the €170.0m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Azerion Group would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Azerion Group'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.

Check out our latest analysis for Azerion Group

In the last year Azerion Group wasn't profitable at an EBIT level, but managed to grow its revenue by 7.0%, to €551m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Azerion Group produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €1.1m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through €14m in negative free cash flow over the last year. That means it's on the risky side of things. 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. To that end, you should be aware of the 1 warning sign we've spotted with Azerion Group .

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.