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Legendary fund manager Li Lu (who Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital. So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. Above all, Lanakam SA (ATH: LANAC) is in debt. But should shareholders be concerned about its use of debt?
Why Does Debt Bring Risk?
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 painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. 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.
See our latest review for Lanakam
How many debts does Lanakam have?
You can click on the graph below for the historical figures, but it shows that in June 2021 Lanakam had a debt of 1.59 million euros, an increase from 1.00 million euros, over a year. However, because it has a cash reserve of € 167.7K, its net debt is lower, at around € 1.42M.
Is Lanakam’s track record healthy?
Zooming in on the latest balance sheet data, we can see that Lanakam had a liability of 2.39 million euros due within 12 months and a liability of 1.86 million euros due beyond. In compensation for these commitments, he had cash of € 167.7K as well as receivables valued at € 492.5K within 12 months. Its liabilities thus exceed the sum of its cash and its receivables (short term) by € 3.59 million.
The Lanakam has a market cap of 6.18 million euros, so it could most likely raise funds to improve its balance sheet, should the need arise. However, it is always worth taking a close look at your ability to repay your debt. When analyzing debt levels, the balance sheet is the obvious starting point. But you can’t look at debt in isolation; since Lanakam 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.
Last year, Lanakam was not profitable in terms of EBIT, but managed to increase its turnover by 7.6%, to 1.7 million euros. This rate of growth is a bit slow for our taste, but it takes all types to make a world.
Emptor Warning
In the last twelve months, Lanakam has recorded a loss of profit before interest and taxes (EBIT). To be precise, the loss of EBIT amounts to 361 K €. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. We therefore believe that its record is a bit strained, but not irreparable. However, it doesn’t help that he spent € 563,000 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. However, not all investment risks lie on the balance sheet – far from it. Concrete example: we have spotted 5 warning signs for Lanakam you need to be aware of this, and 3 of them make us uncomfortable.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
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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