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

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that PCF Group Spólka Akcyjna (WSE:PCF) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for PCF Group Spólka Akcyjna

What Is PCF Group Spólka Akcyjna's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 PCF Group Spólka Akcyjna had debt of zł13.5m, up from zł3.84m in one year. However, its balance sheet shows it holds zł67.1m in cash, so it actually has zł53.6m net cash.

How Strong Is PCF Group Spólka Akcyjna's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that PCF Group Spólka Akcyjna had liabilities of zł57.9m due within 12 months and liabilities of zł34.2m due beyond that. Offsetting these obligations, it had cash of zł67.1m as well as receivables valued at zł70.2m due within 12 months. So it actually has zł45.2m 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. Succinctly put, PCF Group Spólka Akcyjna boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if PCF Group Spólka Akcyjna can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year PCF Group Spólka Akcyjna wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to zł171m. 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?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months PCF Group Spólka Akcyjna lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of zł149m and booked a zł95m accounting loss. With only zł53.6m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that PCF Group Spólka Akcyjna is showing 2 warning signs in our investment analysis , and 1 of those is significant...

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.