These 4 measurements indicate that Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme (ATH: MOTO) uses debt intensively

Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried “. It is only natural to consider a company’s balance sheet when considering how risky it is, as debt is often involved when a business collapses. Above all, Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Société Anonyme (ATH: MOTO) is in debt. But the real question is whether this debt makes the business risky.

When is debt a problem?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. 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.

Discover our latest analysis for Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme

What is the net debt of Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme?

You can click on the graph below for historical figures, but it shows that Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme had 17.4 million euros in debt in June 2021, compared to 27.6 million euros a year ago. However, because it has a cash reserve of 8.59 M €, its net debt is lower, at around 8.84 M €.

ATSE: MOTO History of debt to equity November 29, 2021

A look at the responsibilities of Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme

We can see on the most recent balance sheet that Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme had liabilities of € 32.9 million due in one year and liabilities of € 21.5 million due beyond. In compensation for these obligations, he had cash of € 8.59 million as well as receivables valued at € 8.04 million within 12 months. Its liabilities thus exceed the sum of its cash and its receivables (short term) by € 37.8 million.

This deficit is considerable compared to its market capitalization of 51.1 million euros, so he suggests that shareholders keep an eye on the use of debt by Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme. If its lenders asked it to consolidate the balance sheet, shareholders would likely face severe dilution.

We measure a company’s indebtedness relative to its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation, and amortization (EBITDA) and calculating the ease with which its earnings before interest and taxes (EBIT ) covers its interests. costs (interest coverage). The advantage of this approach is that we take into account both the absolute amount of debt (with net debt versus EBITDA) and the actual interest charges associated with this debt (with its coverage rate). interests).

Given that the net debt is only 1.4 times the EBITDA, it is first surprising to see that the EBIT of Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme has a low interest coverage of 1 ,8 times. So one way or another, it’s clear that debt levels are not trivial. Shareholders should know that the EBIT of Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme fell by 20% last year. If this profit trend continues, paying off debt will be about as easy as driving cats on a roller coaster. The balance sheet is clearly the area to focus on when analyzing debt. But you can’t look at debt in isolation; since Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme will need income to repay this debt. So if you want to know more about its profits, it may be worth checking out this long term profit trend chart.

Finally, a business can only pay off its debts with hard cash, not with book profits. It is therefore worth checking to what extent this EBIT is supported by free cash flow. In the past two years, Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme has actually generated more free cash flow than EBIT. This kind of solid money generation warms our hearts like a puppy in a bumblebee costume.

Our point of view

The EBIT growth rate and the interest coverage of Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme certainly weighs on this, in our opinion. But the good news is that it looks like it can easily convert EBIT into free cash flow. Taking the above factors together, we believe that the debt of Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme presents certain risks to the business. So while this leverage increases returns on equity, we wouldn’t really want to see it increase from here. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. Concrete example: we have spotted 3 warning signs for Emporiki Eisagogiki Aftokiniton Ditrohon kai Mihanon Thalassis Societe Anonyme you need to be aware, and 2 of them are of concern.

Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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