Does Intersport Polska (WSE:IPO) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 Intersport Polska S.A. (WSE:IPO) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Intersport Polska

How Much Debt Does Intersport Polska Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Intersport Polska had zł22.0m of debt, an increase on zł20.9m, over one year. However, it does have zł450.0k in cash offsetting this, leading to net debt of about zł21.6m.

How Strong Is Intersport Polska's Balance Sheet?

According to the last reported balance sheet, Intersport Polska had liabilities of zł95.6m due within 12 months, and liabilities of zł9.49m due beyond 12 months. Offsetting these obligations, it had cash of zł450.0k as well as receivables valued at zł8.53m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł96.1m.

The deficiency here weighs heavily on the zł37.9m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Intersport Polska would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Intersport Polska will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Intersport Polska made a loss at the EBIT level, and saw its revenue drop to zł185m, which is a fall of 13%. That's not what we would hope to see.

Caveat Emptor

While Intersport Polska's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping zł8.0m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely, given it is low on liquid assets, and burned through zł9.7m in the last year. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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. For example, we've discovered 5 warning signs for Intersport Polska (2 don't sit too well with us!) that you should be aware of before investing here.

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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