Is Altur (BVB:ALT) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Altur S.A. (BVB:ALT) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for Altur

How Much Debt Does Altur Carry?

As you can see below, at the end of March 2022, Altur had RON30.0m of debt, up from RON24.0m a year ago. Click the image for more detail. However, because it has a cash reserve of RON951.7k, its net debt is less, at about RON29.0m.

How Strong Is Altur's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Altur had liabilities of RON52.4m due within 12 months and liabilities of RON10.7m due beyond that. On the other hand, it had cash of RON951.7k and RON27.1m worth of receivables due within a year. So it has liabilities totalling RON35.0m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the RON13.0m 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'd watch its balance sheet closely, without a doubt. After all, Altur would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Altur 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 Altur wasn't profitable at an EBIT level, but managed to grow its revenue by 38%, to RON107m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Altur still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable RON3.2m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized RON5.8m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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. Be aware that Altur is showing 4 warning signs in our investment analysis , you should know about...

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.