Figene Capital Spólka Akcyjna (WSE:FIG) Is Carrying A Fair Bit Of Debt

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Figene Capital Spólka Akcyjna (WSE:FIG) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Figene Capital Spólka Akcyjna

How Much Debt Does Figene Capital Spólka Akcyjna Carry?

As you can see below, at the end of June 2021, Figene Capital Spólka Akcyjna had zł7.60m of debt, up from zł4.86m a year ago. Click the image for more detail. However, it does have zł789.1k in cash offsetting this, leading to net debt of about zł6.82m.

How Strong Is Figene Capital Spólka Akcyjna's Balance Sheet?

According to the last reported balance sheet, Figene Capital Spólka Akcyjna had liabilities of zł12.7m due within 12 months, and liabilities of zł11.9m due beyond 12 months. Offsetting these obligations, it had cash of zł789.1k as well as receivables valued at zł14.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł9.77m.

This state of affairs indicates that Figene Capital Spólka Akcyjna's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the zł825.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, Figene Capital Spólka Akcyjna has virtually no net debt, 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 Figene Capital Spólka Akcyjna 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, Figene Capital Spólka Akcyjna reported revenue of zł2.5m, which is a gain of 15%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Figene Capital Spólka Akcyjna produced an earnings before interest and tax (EBIT) loss. Indeed, it lost zł3.9m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled zł6.6m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Figene Capital Spólka Akcyjna (of which 3 are a bit concerning!) you should know about.

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.
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