Does Haidemenos (ATH:HAIDE) Have A Healthy Balance Sheet?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Haidemenos S.A. (ATH:HAIDE) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 Haidemenos
What Is Haidemenos's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Haidemenos had €9.31m of debt in June 2019, down from €10.4m, one year before. However, it does have €6.51m in cash offsetting this, leading to net debt of about €2.80m.
How Healthy Is Haidemenos's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Haidemenos had liabilities of €12.3m due within 12 months and liabilities of €1.39m due beyond that. Offsetting these obligations, it had cash of €6.51m as well as receivables valued at €6.92m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.
Since publicly traded Haidemenos shares are worth a total of €6.05m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Haidemenos will need earnings to service that debt. 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.
In the last year Haidemenos had negative earnings before interest and tax, and actually shrunk its revenue by 3.8%, to €19m. That's not what we would hope to see.
Caveat Emptor
Importantly, Haidemenos had negative earnings before interest and tax (EBIT), over the last year. Indeed, it lost €192k at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €850k of cash over the last year. So in short it's a really risky stock. For riskier companies like Haidemenos I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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