KLON Spólka Akcyjna (WSE:KLN) Is Carrying A Fair Bit Of Debt

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that KLON Spólka Akcyjna (WSE:KLN) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for KLON Spólka Akcyjna

What Is KLON Spólka Akcyjna's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 KLON Spólka Akcyjna had zł10.4m of debt, an increase on zł9.94m, over one year. However, because it has a cash reserve of zł838.0k, its net debt is less, at about zł9.55m.

A Look At KLON Spólka Akcyjna's Liabilities

We can see from the most recent balance sheet that KLON Spólka Akcyjna had liabilities of zł6.21m falling due within a year, and liabilities of zł9.00m due beyond that. On the other hand, it had cash of zł838.0k and zł3.78m worth of receivables due within a year. So it has liabilities totalling zł10.6m more than its cash and near-term receivables, combined.

KLON Spólka Akcyjna has a market capitalization of zł37.3m, 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 you can't view debt in total isolation; since KLON Spólka Akcyjna 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.

Over 12 months, KLON Spólka Akcyjna made a loss at the EBIT level, and saw its revenue drop to zł24m, which is a fall of 2.2%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months KLON Spólka Akcyjna produced an earnings before interest and tax (EBIT) loss. Indeed, it lost zł2.3m 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. We would feel better if it turned its trailing twelve month loss of zł3.8m into a profit. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. 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 KLON Spólka Akcyjna (of which 2 are potentially serious!) you should know about.

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.

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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.