Health Check: How Prudently Does PCF Group Spólka Akcyjna (WSE:PCF) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, PCF Group Spólka Akcyjna (WSE:PCF) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is PCF Group Spólka Akcyjna's Net Debt?

As you can see below, at the end of March 2025, PCF Group Spólka Akcyjna had zł31.2m of debt, up from zł6.87m a year ago. Click the image for more detail. However, its balance sheet shows it holds zł33.7m in cash, so it actually has zł2.46m net cash.

A Look At PCF Group Spólka Akcyjna's Liabilities

Zooming in on the latest balance sheet data, we can see that PCF Group Spólka Akcyjna had liabilities of zł98.1m due within 12 months and liabilities of zł21.5m due beyond that. On the other hand, it had cash of zł33.7m and zł96.5m worth of receivables due within a year. So it can boast zł10.5m more liquid assets than total liabilities.

This surplus suggests that PCF Group Spólka Akcyjna has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that PCF Group Spólka Akcyjna has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since PCF Group 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.

See our latest analysis for PCF Group Spólka Akcyjna

Over 12 months, PCF Group Spólka Akcyjna reported revenue of zł197m, which is a gain of 14%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is PCF Group Spólka Akcyjna?

While PCF Group Spólka Akcyjna lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow zł9.8m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. For example, we've discovered 3 warning signs for PCF Group Spólka Akcyjna (2 are a bit unpleasant!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.