We Think CM.com (AMS:CMCOM) Has A Fair Chunk Of 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, CM.com N.V. (AMS:CMCOM) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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.

Check out our latest analysis for CM.com

How Much Debt Does CM.com Carry?

The chart below, which you can click on for greater detail, shows that CM.com had €97.0m in debt in December 2023; about the same as the year before. However, because it has a cash reserve of €48.6m, its net debt is less, at about €48.4m.

How Strong Is CM.com's Balance Sheet?

The latest balance sheet data shows that CM.com had liabilities of €101.5m due within a year, and liabilities of €112.4m falling due after that. On the other hand, it had cash of €48.6m and €49.8m worth of receivables due within a year. So it has liabilities totalling €115.4m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of €187.9m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if CM.com can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, CM.com made a loss at the EBIT level, and saw its revenue drop to €266m, which is a fall of 6.0%. That's not what we would hope to see.

Caveat Emptor

Importantly, CM.com had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €24m. 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. However, it doesn't help that it burned through €23m of cash over the last year. So suffice it to say we consider the stock very risky. 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 CM.com .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com