Is AND International Publishers (AMS:AND) A Risky Investment?

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. Importantly, AND International Publishers N.V. (AMS:AND) does carry debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for AND International Publishers

How Much Debt Does AND International Publishers Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 AND International Publishers had €1.33m of debt, an increase on €138.0k, over one year. On the flip side, it has €682.0k in cash leading to net debt of about €646.0k.

How Strong Is AND International Publishers's Balance Sheet?

According to the last reported balance sheet, AND International Publishers had liabilities of €982.0k due within 12 months, and liabilities of €1.67m due beyond 12 months. Offsetting these obligations, it had cash of €682.0k as well as receivables valued at €408.0k due within 12 months. So its liabilities total €1.56m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because AND International Publishers is worth €6.24m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is AND International Publishers's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year AND International Publishers wasn't profitable at an EBIT level, but managed to grow its revenue by 66%, to €1.5m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though AND International Publishers managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable €1.3m at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled €1.4m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for AND International Publishers (of which 2 are a bit concerning!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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