Does Carbochim (BVB:CBC) Have A Healthy Balance Sheet?

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.' 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 note that Carbochim S.A. (BVB:CBC) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Carbochim

How Much Debt Does Carbochim Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Carbochim had debt of RON8.78m, up from RON3.34m in one year. But on the other hand it also has RON27.5m in cash, leading to a RON18.7m net cash position.

A Look At Carbochim's Liabilities

The latest balance sheet data shows that Carbochim had liabilities of RON32.6m due within a year, and liabilities of RON8.96m falling due after that. On the other hand, it had cash of RON27.5m and RON11.8m worth of receivables due within a year. So it has liabilities totalling RON2.22m more than its cash and near-term receivables, combined.

Having regard to Carbochim's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the RON300.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Carbochim boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Carbochim'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.

Over 12 months, Carbochim made a loss at the EBIT level, and saw its revenue drop to RON32m, which is a fall of 3.2%. That's not what we would hope to see.

So How Risky Is Carbochim?

Although Carbochim had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of RON2.7m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. To that end, you should learn about the 5 warning signs we've spotted with Carbochim (including 2 which shouldn't be ignored) .

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.