Would Moliera2 (WSE:MO2) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Moliera2 S.A. (WSE:MO2) makes use of debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Moliera2

What Is Moliera2's Debt?

The image below, which you can click on for greater detail, shows that Moliera2 had debt of zł11.5m at the end of September 2024, a reduction from zł20.5m over a year. However, because it has a cash reserve of zł1.60m, its net debt is less, at about zł9.92m.

How Healthy Is Moliera2's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Moliera2 had liabilities of zł24.6m due within 12 months and liabilities of zł250.8k due beyond that. Offsetting these obligations, it had cash of zł1.60m as well as receivables valued at zł1.79m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł21.5m.

This is a mountain of leverage relative to its market capitalization of zł34.6m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe 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 Moliera2 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, Moliera2 made a loss at the EBIT level, and saw its revenue drop to zł74m, which is a fall of 23%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Moliera2's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping zł12m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through zł9.5m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 5 warning signs we've spotted with Moliera2 .

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.