Fastned B.V (AMS:FAST) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Fastned B.V. (AMS:FAST) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, 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 2021 Fastned B.V had €87.7m of debt, an increase on €57.0m, over one year. But it also has €160.7m in cash to offset that, meaning it has €73.0m net cash.

How Healthy Is Fastned B.V's Balance Sheet?

According to the last reported balance sheet, Fastned B.V had liabilities of €13.6m due within 12 months, and liabilities of €88.2m due beyond 12 months. Offsetting this, it had €160.7m in cash and €1.59m in receivables that were due within 12 months. So it actually has €60.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Fastned B.V could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Fastned B.V has more cash than debt is arguably a good indication that it can manage its debt safely. 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 25%, to €8.3m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Fastned B.V?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Fastned B.V lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €24m of cash and made a loss of €23m. But at least it has €73.0m on the balance sheet to spend on growth, near-term. Fastned B.V's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Fastned B.V you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.
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