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

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.' 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. We note that Enter Air Sp. z o.o. (WSE:ENT) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. 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, 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.

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

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

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Enter Air Sp. z o.o had zł84.2m of debt, an increase on zł2.61m, over one year. But on the other hand it also has zł94.1m in cash, leading to a zł9.93m net cash position.

A Look At Enter Air Sp. z o.o's Liabilities

We can see from the most recent balance sheet that Enter Air Sp. z o.o had liabilities of zł469.2m falling due within a year, and liabilities of zł1.03b due beyond that. Offsetting this, it had zł94.1m in cash and zł91.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł1.31b.

The deficiency here weighs heavily on the zł647.4m 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, Enter Air Sp. z o.o would probably need a major re-capitalization if its creditors were to demand repayment. 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. When analysing debt levels, the balance sheet is the obvious place to start. 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%. To be frank that doesn't bode well.

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

While Enter Air Sp. z o.o lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow 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. Given the lack of transparency around future revenue (and cashflow), we're nervous about this one, until it makes its first big sales. To us, it is a high risk play. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Enter Air Sp. z o.o , and understanding them should be part of your investment process.

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. 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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