Would Fastned B.V (AMS:FAST) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that Fastned B.V. (AMS:FAST) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Fastned B.V

What Is Fastned B.V's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Fastned B.V had €134.9m of debt, an increase on €105.8m, over one year. However, it does have €132.6m in cash offsetting this, leading to net debt of about €2.35m.

A Look At Fastned B.V's Liabilities

We can see from the most recent balance sheet that Fastned B.V had liabilities of €30.6m falling due within a year, and liabilities of €140.8m due beyond that. Offsetting this, it had €132.6m in cash and €9.05m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €29.8m.

Given Fastned B.V has a market capitalization of €482.2m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, Fastned B.V has virtually no net debt, so it's fair to say it does not have a heavy debt load! 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 Fastned B.V can strengthen its balance sheet over time. 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 141%, to €50m. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, Fastned B.V still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €11m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled €85m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For example - Fastned B.V has 1 warning sign we think you should be aware of.

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.