Health Check: How Prudently Does Carbochim (BVB:CBC) Use 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 note that Carbochim S.A. (BVB:CBC) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Carbochim Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Carbochim had RON8.20m of debt, an increase on RON7.18m, over one year. But on the other hand it also has RON30.0m in cash, leading to a RON21.7m net cash position.

A Look At Carbochim's Liabilities

We can see from the most recent balance sheet that Carbochim had liabilities of RON31.3m falling due within a year, and liabilities of RON7.94m due beyond that. Offsetting this, it had RON30.0m in cash and RON5.61m in receivables that were due within 12 months. So it has liabilities totalling RON3.72m 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 it's very unlikely that the RON204.9m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Carbochim also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. 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.

Check out our latest analysis for Carbochim

In the last year Carbochim had a loss before interest and tax, and actually shrunk its revenue by 13%, to RON29m. We would much prefer see growth.

So How Risky Is Carbochim?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Carbochim had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of RON12m and booked a RON1.2m accounting loss. With only RON21.7m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For example, we've discovered 3 warning signs for Carbochim that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.