Is FinTech Ventures (WSE:FIV) Using Too Much 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.' 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. As with many other companies FinTech Ventures S.A. (WSE:FIV) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for FinTech Ventures

What Is FinTech Ventures's Net Debt?

As you can see below, at the end of March 2022, FinTech Ventures had zł11.1m of debt, up from zł3.13m a year ago. Click the image for more detail. However, it also had zł966.8k in cash, and so its net debt is zł10.2m.

How Strong Is FinTech Ventures' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that FinTech Ventures had liabilities of zł14.5m due within 12 months and no liabilities due beyond that. Offsetting this, it had zł966.8k in cash and zł31.4m in receivables that were due within 12 months. So it can boast zł17.8m more liquid assets than total liabilities.

This excess liquidity is a great indication that FinTech Ventures' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. The balance sheet is clearly the area to focus on when you are analysing debt. But it is FinTech Ventures's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, FinTech Ventures reported revenue of zł2.1m, which is a gain of 69%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Over the last twelve months FinTech Ventures produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable zł10m at the EBIT level. That said, we're impressed with the strong balance sheet liquidity. That will give the company some time and space to grow and develop its business as need be. While the stock is probably a bit risky, there may be an opportunity if the business itself improves, allowing the company to stage a recovery. 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. For instance, we've identified 5 warning signs for FinTech Ventures that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.