Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Like many other companies aap Implantate SA (ETR: AAQ1) uses debt. But the real question is whether this debt makes the business risky.
What risk does debt entail?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, many companies use debt to finance their growth without negative consequences. When we think of a business’s use of debt, we first look at cash flow and debt together.
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What is aap Implantate Net Debt?
You can click on the graph below for historical figures, but it shows that in June 2021 aap Implantate had a debt of 2.58 million euros, an increase from 405.0k €, on a year. However, he also had € 1.49m in cash, so his net debt is € 1.09m.
How strong is aap Implantate’s track record?
The latest balance sheet data shows that aap Implantate had debt of 5.75 million euros maturing within one year, and debts of 5.6 million euros maturing thereafter. In return, he had € 1.49 million in cash and € 2.60 million in receivables due within 12 months. Its liabilities therefore amount to € 7.27 million more than the combination of its cash and short-term receivables.
aap Implantate has a market capitalization of 13.7 million euros, so it could most likely raise cash to improve its balance sheet, should the need arise. But we absolutely want to keep our eyes open for indications that its debt is too risky. There is no doubt that we learn the most about debt from the balance sheet. But it is the future benefits, more than anything, that will determine aap Implantate’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over 12 months, aap Implantate achieved a turnover of 11 M €, ie a gain of 5.5%, although it did not record any profit before interest and taxes. This rate of growth is a bit slow for our taste, but it takes all types to make a world.
Emptor Warning
During the last twelve months, aap Implantate has generated a loss of profit before interest and taxes (EBIT). Indeed, it lost a very significant amount of € 3.7 million in terms of EBIT. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. Quite frankly, we believe the record is far from up to par, although it could improve over time. However, it doesn’t help that he spent 2.6 million euros in cash in the past year. In short, it is a really risky action. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. For example, we have identified 4 warning signs for aap Implanting (1 should not be ignored) you should be aware of this.
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
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