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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.' 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 SeSa S.p.A. (BIT:SES) makes use of debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for SeSa
What Is SeSa's Net Debt?
The chart below, which you can click on for greater detail, shows that SeSa had €189.8m in debt in April 2019; about the same as the year before. However, its balance sheet shows it holds €249.8m in cash, so it actually has €60.0m net cash.
A Look At SeSa's Liabilities
Zooming in on the latest balance sheet data, we can see that SeSa had liabilities of €491.6m due within 12 months and liabilities of €165.2m due beyond that. On the other hand, it had cash of €249.8m and €408.4m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.
This state of affairs indicates that SeSa's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €507.6m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, SeSa boasts net cash, so it's fair to say it does not have a heavy debt load!
And we also note warmly that SeSa grew its EBIT by 14% last year, making its debt load easier to handle. 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 SeSa'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.