MYT Netherlands Parent B.V (NYSE:MYTE) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies MYT Netherlands Parent B.V. (NYSE:MYTE) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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 MYT Netherlands Parent B.V

What Is MYT Netherlands Parent B.V's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 MYT Netherlands Parent B.V had €1.40m of debt, an increase on none, over one year. But it also has €6.44m in cash to offset that, meaning it has €5.03m net cash.

A Look At MYT Netherlands Parent B.V's Liabilities

The latest balance sheet data shows that MYT Netherlands Parent B.V had liabilities of €230.9m due within a year, and liabilities of €47.8m falling due after that. On the other hand, it had cash of €6.44m and €16.6m worth of receivables due within a year. So it has liabilities totalling €255.7m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of €340.7m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, MYT Netherlands Parent B.V boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine MYT Netherlands Parent B.V's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, MYT Netherlands Parent B.V reported revenue of €787m, which is a gain of 11%, 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.

So How Risky Is MYT Netherlands Parent B.V?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months MYT Netherlands Parent B.V lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of €38m and booked a €28m accounting loss. Given it only has net cash of €5.03m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Be aware that MYT Netherlands Parent B.V is showing 2 warning signs in our investment analysis , 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.