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

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 can see that CCC S.A. (WSE:CCC) does use debt in its business. But should shareholders be worried about its use of debt?

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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for CCC

How Much Debt Does CCC Carry?

The image below, which you can click on for greater detail, shows that CCC had debt of zł2.18b at the end of October 2023, a reduction from zł2.56b over a year. On the flip side, it has zł570.3m in cash leading to net debt of about zł1.61b.

A Look At CCC's Liabilities

Zooming in on the latest balance sheet data, we can see that CCC had liabilities of zł4.89b due within 12 months and liabilities of zł2.05b due beyond that. Offsetting this, it had zł570.3m in cash and zł490.6m in receivables that were due within 12 months. So its liabilities total zł5.88b more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of zł4.43b, we think shareholders really should watch CCC'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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine CCC's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year CCC wasn't profitable at an EBIT level, but managed to grow its revenue by 7.4%, to zł9.4b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, CCC had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at zł12m. 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. It's fair to say the loss of zł201m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be 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. To that end, you should be aware of the 2 warning signs we've spotted with CCC .

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.