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.' 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 S.C. UAMT S.A. (BVB:UAM) does have debt on its balance sheet. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for S.C. UAMT
What Is S.C. UAMT's Debt?
The image below, which you can click on for greater detail, shows that S.C. UAMT had debt of RON15.1m at the end of September 2022, a reduction from RON25.1m over a year. However, it also had RON8.90m in cash, and so its net debt is RON6.22m.
A Look At S.C. UAMT's Liabilities
Zooming in on the latest balance sheet data, we can see that S.C. UAMT had liabilities of RON13.7m due within 12 months and liabilities of RON21.4m due beyond that. On the other hand, it had cash of RON8.90m and RON15.7m worth of receivables due within a year. So it has liabilities totalling RON10.5m more than its cash and near-term receivables, combined.
This deficit isn't so bad because S.C. UAMT is worth RON35.5m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is S.C. UAMT's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year S.C. UAMT wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to RON80m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
Caveat Emptor
Over the last twelve months S.C. UAMT produced an earnings before interest and tax (EBIT) loss. Indeed, it lost RON1.4m 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. However, it doesn't help that it burned through RON8.2m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for S.C. UAMT that you should be aware of before investing here.
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 BVB:UAM
S.C. UAMT
Manufactures and sells other parts and accessories for motor vehicles and motor vehicle engines in Europe.
Adequate balance sheet low.