David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that MailUp S.p.A. (BIT:MAIL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for MailUp
What Is MailUp's Net Debt?
As you can see below, at the end of December 2018, MailUp had €5.56m of debt, up from €3.45m a year ago. Click the image for more detail. However, it does have €8.18m in cash offsetting this, leading to net cash of €2.62m.
How Healthy Is MailUp's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that MailUp had liabilities of €21.2m due within 12 months and liabilities of €5.85m due beyond that. Offsetting this, it had €8.18m in cash and €11.5m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €7.43m.
Of course, MailUp has a market capitalization of €55.4m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, MailUp also has more cash than debt, so we're pretty confident it can manage its debt safely.
On top of that, MailUp grew its EBIT by 48% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine MailUp's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.