WISE Finance (WSE:IBS) Is Carrying A Fair Bit Of 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.' 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. As with many other companies WISE Finance S.A. (WSE:IBS) makes use of debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for WISE Finance

How Much Debt Does WISE Finance Carry?

The image below, which you can click on for greater detail, shows that at March 2024 WISE Finance had debt of zł64.7m, up from zł46.3m in one year. Net debt is about the same, since the it doesn't have much cash.

How Strong Is WISE Finance's Balance Sheet?

The latest balance sheet data shows that WISE Finance had liabilities of zł59.6m due within a year, and liabilities of zł22.3m falling due after that. Offsetting these obligations, it had cash of zł956.0k as well as receivables valued at zł97.5m due within 12 months. So it actually has zł16.6m more liquid assets than total liabilities.

This surplus strongly suggests that WISE Finance has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since WISE Finance 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, WISE Finance made a loss at the EBIT level, and saw its revenue drop to zł17m, which is a fall of 12%. That's not what we would hope to see.

Caveat Emptor

Not only did WISE Finance's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at zł1.2m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. And the cherry on top is that its actual free cash flow was zł5.7m with statutory profit coming in at zł12m. This one is a bit too risky for our liking. When analysing debt levels, the balance sheet is the obvious place to start. 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 6 warning signs for WISE Finance (of which 3 are significant!) you should know about.

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.