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 Atende S.A. (WSE:ATD) makes use of debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Atende
What Is Atende's Net Debt?
As you can see below, Atende had zł8.80m of debt at March 2022, down from zł18.3m a year prior. However, its balance sheet shows it holds zł14.7m in cash, so it actually has zł5.91m net cash.
How Strong Is Atende's Balance Sheet?
According to the last reported balance sheet, Atende had liabilities of zł61.7m due within 12 months, and liabilities of zł17.3m due beyond 12 months. Offsetting these obligations, it had cash of zł14.7m as well as receivables valued at zł65.7m due within 12 months. So these liquid assets roughly match the total liabilities.
This state of affairs indicates that Atende's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the zł119.9m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Atende boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Atende 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.
In the last year Atende had a loss before interest and tax, and actually shrunk its revenue by 20%, to zł207m. That's not what we would hope to see.
So How Risky Is Atende?
Although Atende had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of zł2.3m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. Case in point: We've spotted 3 warning signs for Atende you should be aware of, and 1 of them is potentially serious.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.
About WSE:ATD
Atende
Engages in the integration of IT systems and development of ICT infrastructures in Poland.
Flawless balance sheet moderate.
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