Is Airway Medix (WSE:AWM) Using Too Much Debt?

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. Importantly, Airway Medix S.A. (WSE:AWM) does carry debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Airway Medix

How Much Debt Does Airway Medix Carry?

As you can see below, at the end of June 2021, Airway Medix had zł13.8m of debt, up from zł6.93m a year ago. Click the image for more detail. On the flip side, it has zł5.15m in cash leading to net debt of about zł8.63m.

How Strong Is Airway Medix's Balance Sheet?

We can see from the most recent balance sheet that Airway Medix had liabilities of zł16.8m falling due within a year, and liabilities of zł4.87m due beyond that. Offsetting this, it had zł5.15m in cash and zł2.46m in receivables that were due within 12 months. So its liabilities total zł14.1m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Airway Medix is worth zł60.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is Airway Medix'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.

Given its lack of meaningful operating revenue, Airway Medix shareholders no doubt hope it can fund itself until it can sell some of its new medical technology.

Caveat Emptor

Importantly, Airway Medix had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping zł15m. 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. However, it doesn't help that it burned through zł6.6m of cash over the last year. So suffice it to say we consider the stock very risky. 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. Case in point: We've spotted 5 warning signs for Airway Medix you should be aware of, and 3 of them are a bit concerning.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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