Does CM.com (AMS:CMCOM) Have A Healthy Balance Sheet?

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 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 note that CM.com N.V. (AMS:CMCOM) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for CM.com

How Much Debt Does CM.com Carry?

As you can see below, at the end of June 2022, CM.com had €94.3m of debt, up from €910.0k a year ago. Click the image for more detail. However, its balance sheet shows it holds €97.0m in cash, so it actually has €2.65m net cash.

A Look At CM.com's Liabilities

Zooming in on the latest balance sheet data, we can see that CM.com had liabilities of €92.5m due within 12 months and liabilities of €112.9m due beyond that. Offsetting these obligations, it had cash of €97.0m as well as receivables valued at €41.8m due within 12 months. So its liabilities total €66.7m more than the combination of its cash and short-term receivables.

CM.com has a market capitalization of €321.5m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, CM.com boasts net cash, 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 it is future earnings, more than anything, that will determine CM.com'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.

Over 12 months, CM.com reported revenue of €261m, which is a gain of 33%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is CM.com?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that CM.com had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €32m and booked a €34m accounting loss. With only €2.65m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, CM.com may be on a path to profitability. Pre-profit companies are often 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. To that end, you should be aware of the 2 warning signs we've spotted with CM.com .

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.