Elviemek Land Development – Logistics Parks – Energy

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Howard Marks put it nicely when he said that, rather than worrying about share price volatility, ‘The possibility of permanent loss is the risk I worry about… and every practical investor I know worries about.’ It’s only natural to consider a company’s balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Elviemek Land Development – Logistics Parks – Energy – Recycling S.A. (ATH:ELBIO) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. 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 Elviemek Land Development – Logistics Parks – Energy – Recycling

How Much Debt Does Elviemek Land Development – Logistics Parks – Energy – Recycling Carry?

The image below, which you can click on for greater detail, shows that Elviemek Land Development – Logistics Parks – Energy – Recycling had debt of €4.84m at the end of December 2018, a reduction from €5.13m over a year. Net debt is about the same, since the it doesn’t have much cash.

ATSE:ELBIO Historical Debt, August 28th 2019

How Healthy Is Elviemek Land Development – Logistics Parks – Energy – Recycling’s Balance Sheet?

The latest balance sheet data shows that Elviemek Land Development – Logistics Parks – Energy – Recycling had liabilities of €8.16m due within a year, and liabilities of €6.77m falling due after that. Offsetting this, it had €54.9k in cash and €3.06m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €11.8m.

This deficit is considerable relative to its market capitalization of €18.4m, so it does suggest shareholders should keep an eye on Elviemek Land Development – Logistics Parks – Energy – Recycling’s use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There’s no doubt that we learn most about debt from the balance sheet. But it is Elviemek Land Development – Logistics Parks – Energy – Recycling’s earnings that will influence how the balance sheet holds up in the future. So if you’re keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

It seems likely shareholders hope that Elviemek Land Development – Logistics Parks – Energy – Recycling can significantly advance the business plan before too long, because it doesn’t have any significant revenue at the moment.

Caveat Emptor

While Elviemek Land Development – Logistics Parks – Energy – Recycling’s falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €418k. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn’t help that it burned through €239k of cash over the last year. So to be blunt we think it is risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we’re providing readers this interactive graph showing how Elviemek Land Development – Logistics Parks – Energy – Recycling’s profit, revenue, and operating cashflow have changed over the last few years.

At the end of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.



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