Does APS Energia (WSE:APE) Have A Healthy Balance Sheet?

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.' 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 APS Energia SA (WSE:APE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for APS Energia

How Much Debt Does APS Energia Carry?

The chart below, which you can click on for greater detail, shows that APS Energia had zł9.42m in debt in June 2024; about the same as the year before. On the flip side, it has zł3.42m in cash leading to net debt of about zł6.00m.

How Healthy Is APS Energia's Balance Sheet?

We can see from the most recent balance sheet that APS Energia had liabilities of zł47.0m falling due within a year, and liabilities of zł19.0m due beyond that. On the other hand, it had cash of zł3.42m and zł20.6m worth of receivables due within a year. So its liabilities total zł42.0m more than the combination of its cash and short-term receivables.

APS Energia has a market capitalization of zł76.1m, 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. There's no doubt that we learn most about debt from the balance sheet. But it is APS Energia'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.

Over 12 months, APS Energia made a loss at the EBIT level, and saw its revenue drop to zł133m, which is a fall of 4.9%. That's not what we would hope to see.

Caveat Emptor

Importantly, APS Energia had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost zł1.8m 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled zł813k in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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. To that end, you should learn about the 3 warning signs we've spotted with APS Energia (including 2 which are a bit concerning) .

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.