Would Platige Image (WSE:PLI) Be Better Off With Less 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.' 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, Platige Image S.A. (WSE:PLI) 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Platige Image

What Is Platige Image's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Platige Image had zł18.9m of debt, an increase on zł12.7m, over one year. However, it also had zł2.77m in cash, and so its net debt is zł16.1m.

How Healthy Is Platige Image's Balance Sheet?

According to the last reported balance sheet, Platige Image had liabilities of zł43.4m due within 12 months, and liabilities of zł6.52m due beyond 12 months. Offsetting this, it had zł2.77m in cash and zł19.8m in receivables that were due within 12 months. So it has liabilities totalling zł27.3m more than its cash and near-term receivables, combined.

Platige Image has a market capitalization of zł53.8m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Platige Image 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, Platige Image made a loss at the EBIT level, and saw its revenue drop to zł133m, which is a fall of 9.1%. That's not what we would hope to see.

Caveat Emptor

Importantly, Platige Image had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable zł6.1m at the EBIT level. 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. Another cause for caution is that is bled zł5.1m in negative free cash flow over the last twelve months. 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. Be aware that Platige Image is showing 4 warning signs in our investment analysis , and 2 of those make us uncomfortable...

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.