GeoJunxion (AMS:GOJXN) Is Making Moderate Use 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.' 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. We note that GeoJunxion N.V. (AMS:GOJXN) does have debt on its balance sheet. 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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for GeoJunxion

How Much Debt Does GeoJunxion Carry?

The image below, which you can click on for greater detail, shows that at December 2020 GeoJunxion had debt of €1.28m, up from €138.0k in one year. However, it also had €1.11m in cash, and so its net debt is €168.0k.

A Look At GeoJunxion's Liabilities

We can see from the most recent balance sheet that GeoJunxion had liabilities of €1.36m falling due within a year, and liabilities of €1.62m due beyond that. Offsetting this, it had €1.11m in cash and €792.0k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.08m.

Given GeoJunxion has a market capitalization of €7.17m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since GeoJunxion will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, GeoJunxion reported revenue of €1.6m, which is a gain of 46%, 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.

Caveat Emptor

Despite the top line growth, GeoJunxion still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable €1.4m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €1.4m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 5 warning signs we've spotted with GeoJunxion (including 3 which are a bit concerning) .

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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