In This Article:
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Cembre S.p.A. (BIT:CMB) makes use of debt. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Cembre
How Much Debt Does Cembre Carry?
You can click the graphic below for the historical numbers, but it shows that as of March 2019 Cembre had €7.17m of debt, an increase on none, over one year. But it also has €16.9m in cash to offset that, meaning it has €9.77m net cash.
A Look At Cembre's Liabilities
According to the last reported balance sheet, Cembre had liabilities of €34.1m due within 12 months, and liabilities of €13.5m due beyond 12 months. Offsetting these obligations, it had cash of €16.9m as well as receivables valued at €34.5m due within 12 months. So it can boast €3.92m more liquid assets than total liabilities.
Having regard to Cembre's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €351.1m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Cembre boasts net cash, so it's fair to say it does not have a heavy debt load!
The good news is that Cembre has increased its EBIT by 4.7% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Cembre's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.