Does Bras (WSE:BSA) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Bras S.A. (WSE:BSA) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Bras's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Bras had zł10.3m of debt, an increase on zł9.28m, over one year. However, it also had zł1.75m in cash, and so its net debt is zł8.54m.

How Healthy Is Bras' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bras had liabilities of zł5.78m due within 12 months and liabilities of zł11.4m due beyond that. On the other hand, it had cash of zł1.75m and zł3.93m worth of receivables due within a year. So it has liabilities totalling zł11.5m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Bras has a market capitalization of zł22.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Bras's earnings that will influence how the balance sheet holds up in the future. 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 Bras

In the last year Bras wasn't profitable at an EBIT level, but managed to grow its revenue by 33%, to zł15m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Bras managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost zł283k at the EBIT level. 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. For example, we would not want to see a repeat of last year's loss of zł2.6m. In the meantime, 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Bras (of which 2 can't be ignored!) you should know about.

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.