David Iben put it well when he said: “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ 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. We note that Braster SA (WSE: BRA) has debt on its balance sheet. But does this debt concern shareholders?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. Of course, debt can be an important tool in businesses, especially capital intensive businesses. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
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What is Braster’s debt?
As you can see below, Braster was in debt of Z12.0million, as of June 2021, which is roughly the same as the year before. You can click on the graph for more details. And he doesn’t have a lot of cash, so his net debt is about the same.
A look at Braster’s responsibilities
Zooming in on the latest balance sheet data, we can see that Braster had a Z24.5million liability due within 12 months and Z 4.25million liabilities due beyond. In return, he had 41.0,000 z in cash and 365.0,000 z in receivables due within 12 months. It therefore has a liability totaling Z 28.3 million more than its combined cash and short-term receivables.
Given that this deficit is actually greater than the company’s market cap of Z27.2million, we think shareholders should really watch Braster’s debt levels, like a parent watching their child go crazy. cycling for the first time. Hypothetically, extremely high dilution would be required if the company were forced to repay its debts by raising capital at the current share price. When analyzing debt levels, the balance sheet is the obvious starting point. But it is Braster’s earnings that will influence the way the balance sheet looks in the future. So if you want to know more about its profits, it may be worth checking out this long term profit trend chart.
Given its lack of significant operating revenue, Braster shareholders are no doubt hoping that it can fund itself until it can sell some of its new medical technology.
It is important to note that Braster has recorded a loss of earnings before interest and taxes (EBIT) over the past year. Its loss of EBIT was 6.4 million z. Considering that aside from the liabilities mentioned above, we are nervous about the business. It would have to improve its operation quickly for us to take an interest in it. Notably because he had a negative free cash flow of Z2.4million in the last twelve months. That means it’s on the risky side of things. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 5 warning signs for Braster (including 3 a little unpleasant!) to know.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.
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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