Is Enter Air Sp. z o.o (WSE:ENT) A Risky Investment?

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.' 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. Importantly, Enter Air Sp. z o.o. (WSE:ENT) does carry debt. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Enter Air Sp. z o.o

What Is Enter Air Sp. z o.o's Net Debt?

As you can see below, at the end of September 2020, Enter Air Sp. z o.o had zł84.2m of debt, up from zł2.61m a year ago. Click the image for more detail. However, its balance sheet shows it holds zł94.1m in cash, so it actually has zł9.93m net cash.

How Healthy Is Enter Air Sp. z o.o's Balance Sheet?

According to the last reported balance sheet, Enter Air Sp. z o.o had liabilities of zł469.2m due within 12 months, and liabilities of zł1.03b due beyond 12 months. On the other hand, it had cash of zł94.1m and zł91.0m worth of receivables due within a year. So its liabilities total zł1.31b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the zł624.6m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Enter Air Sp. z o.o would likely require a major re-capitalisation if it had to pay its creditors today. Enter Air Sp. z o.o boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Enter Air Sp. z o.o's earnings that will influence how the balance sheet holds up in the future. 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, Enter Air Sp. z o.o made a loss at the EBIT level, and saw its revenue drop to zł688m, which is a fall of 56%. That makes us nervous, to say the least.

So How Risky Is Enter Air Sp. z o.o?

Although Enter Air Sp. z o.o had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of zł41m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Enter Air Sp. z o.o (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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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