Does Tower Investments (WSE:TOW) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Tower Investments S.A. (WSE:TOW) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Tower Investments

How Much Debt Does Tower Investments Carry?

As you can see below, Tower Investments had zł24.7m of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has zł3.32m in cash leading to net debt of about zł21.4m.

A Look At Tower Investments's Liabilities

Zooming in on the latest balance sheet data, we can see that Tower Investments had liabilities of zł13.7m due within 12 months and liabilities of zł36.4m due beyond that. Offsetting this, it had zł3.32m in cash and zł10.4m in receivables that were due within 12 months. So it has liabilities totalling zł36.4m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the zł20.1m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Tower Investments would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Tower Investments 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, Tower Investments made a loss at the EBIT level, and saw its revenue drop to zł23m, which is a fall of 26%. To be frank that doesn't bode well.

Caveat Emptor

While Tower Investments's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at zł1.1m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of zł2.9m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Tower Investments (of which 2 can't be ignored!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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.
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