Hydrapres (WSE:HPS) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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, Hydrapres S.A. (WSE:HPS) does carry debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Hydrapres's Net Debt?

As you can see below, at the end of March 2025, Hydrapres had zł6.41m of debt, up from zł4.02m a year ago. Click the image for more detail. However, it does have zł1.37m in cash offsetting this, leading to net debt of about zł5.05m.

How Strong Is Hydrapres' Balance Sheet?

The latest balance sheet data shows that Hydrapres had liabilities of zł16.6m due within a year, and liabilities of zł7.20m falling due after that. Offsetting these obligations, it had cash of zł1.37m as well as receivables valued at zł6.23m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł16.2m.

Given this deficit is actually higher than the company's market capitalization of zł15.1m, we think shareholders really should watch Hydrapres's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Hydrapres 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.

Check out our latest analysis for Hydrapres

In the last year Hydrapres had a loss before interest and tax, and actually shrunk its revenue by 7.8%, to zł32m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Hydrapres produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping zł3.8m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through zł2.9m in negative free cash flow over the last year. That means it's on the risky side of things. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Hydrapres .

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.