Does Astro (WSE:ASR) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 Astro S.A. (WSE:ASR) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Astro

What Is Astro's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Astro had zł10.2m of debt, an increase on zł5.31m, over one year. However, it also had zł4.83m in cash, and so its net debt is zł5.41m.

A Look At Astro's Liabilities

According to the last reported balance sheet, Astro had liabilities of zł8.14m due within 12 months, and liabilities of zł2.21m due beyond 12 months. On the other hand, it had cash of zł4.83m and zł346.7k worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł5.18m.

While this might seem like a lot, it is not so bad since Astro has a market capitalization of zł12.2m, and so it could probably strengthen its balance sheet by raising capital if it needed to. 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 it is Astro'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.

In the last year Astro had a loss before interest and tax, and actually shrunk its revenue by 7.0%, to zł2.9m. That's not what we would hope to see.

Caveat Emptor

Importantly, Astro had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping zł3.2m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through zł3.8m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 3 warning signs we've spotted with Astro .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.