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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Median Technologies SA (EPA:ALMDT) does use debt in its business. But is this debt a concern to shareholders?
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. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for Median Technologies
How Much Debt Does Median Technologies Carry?
The image below, which you can click on for greater detail, shows that Median Technologies had debt of €2.0k at the end of June 2019, a reduction from €4.0k over a year. However, its balance sheet shows it holds €8.03m in cash, so it actually has €8.03m net cash.
A Look At Median Technologies's Liabilities
We can see from the most recent balance sheet that Median Technologies had liabilities of €9.28m falling due within a year, and liabilities of €1.74m due beyond that. Offsetting this, it had €8.03m in cash and €5.46m in receivables that were due within 12 months. So it actually has €2.47m more liquid assets than total liabilities.
This surplus suggests that Median Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Median Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Median Technologies'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.
In the last year Median Technologies's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.
So How Risky Is Median Technologies?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Median Technologies had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of €11m and booked a €11m accounting loss. Given it only has net cash of €8.03m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 Median Technologies's profit, revenue, and operating cashflow have changed over the last few years.