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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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Streamwide S.A. (EPA:ALSTW) makes use of debt. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Streamwide
How Much Debt Does Streamwide Carry?
You can click the graphic below for the historical numbers, but it shows that Streamwide had €1.32m of debt in December 2018, down from €1.67m, one year before. However, its balance sheet shows it holds €2.66m in cash, so it actually has €1.34m net cash.
How Strong Is Streamwide's Balance Sheet?
According to the last reported balance sheet, Streamwide had liabilities of €6.25m due within 12 months, and liabilities of €2.37m due beyond 12 months. Offsetting this, it had €2.66m in cash and €8.01m in receivables that were due within 12 months. So it can boast €2.05m more liquid assets than total liabilities.
This surplus suggests that Streamwide has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Streamwide boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Streamwide'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.
Over 12 months, Streamwide reported revenue of €6.8m, which is a gain of 18%. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Streamwide?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Streamwide lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of €2.0m and booked a €975k accounting loss. However, it has net cash of €2.7m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 Streamwide's profit, revenue, and operating cashflow have changed over the last few years.