Fastned B.V (AMS:FAST) Has Debt But No Earnings; Should You Worry?

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, Fastned B.V. (AMS:FAST) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Fastned B.V

What Is Fastned B.V's Net Debt?

As you can see below, at the end of December 2022, Fastned B.V had €112.9m of debt, up from €86.3m a year ago. Click the image for more detail. However, its balance sheet shows it holds €149.5m in cash, so it actually has €36.6m net cash.

How Strong Is Fastned B.V's Balance Sheet?

According to the last reported balance sheet, Fastned B.V had liabilities of €31.7m due within 12 months, and liabilities of €122.9m due beyond 12 months. Offsetting these obligations, it had cash of €149.5m as well as receivables valued at €12.7m due within 12 months. So it actually has €7.70m more liquid assets than total liabilities.

This state of affairs indicates that Fastned B.V's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €608.6m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Fastned B.V has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Fastned B.V's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Fastned B.V wasn't profitable at an EBIT level, but managed to grow its revenue by 189%, to €36m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Fastned B.V?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Fastned B.V had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €78m of cash and made a loss of €22m. But at least it has €36.6m on the balance sheet to spend on growth, near-term. The good news for shareholders is that Fastned B.V has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Fastned B.V , and understanding them should be part of your investment process.

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.