We believe that genOway Société anonyme (EPA:ALGEN) has a good part of the debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Like many other companies genOway Public limited company (EPA:ALGEN) uses debt. But should shareholders worry about its use of debt?

Why is debt risky?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case, 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 at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt together.

See our latest analysis for genOway Société anonyme

What is the net debt of genOway Société anonyme?

As you can see below, genOway Société anonyme had 10.8 million euros in debt, as of December 2021, roughly the same as the previous year. You can click on the graph for more details. On the other hand, he has €5.61 million in cash, resulting in a net debt of around €5.22 million.

ENXTPA: history of ALGEN’s debt to equity at May 31, 2022

How solid is the balance sheet of genOway Société anonyme?

It appears from the last balance sheet that genOway Société anonyme had liabilities of €8.28 million within one year and liabilities of €9.66 million beyond. On the other hand, it has cash of €5.61 million and €12.5 million in receivables at less than one year. These liquid assets therefore roughly correspond to the total liabilities.

This state of affairs indicates that the balance sheet of genOway Société anonyme appears to be quite solid, with its total liabilities being approximately equal to its liquidities. So while it’s hard to imagine the 31.6 million euro business struggling for cash, we still think it’s worth keeping an eye on its balance sheet. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in total isolation; since genOway Société anonyme will need income to service this debt. So, when considering debt, it is definitely worth looking at the earnings trend. Click here for an interactive preview.

Over 12 months, genOway Société anonyme achieved a turnover of €20 million, a gain of 20%, although it did not publish any results before interest and taxes. With a little luck, the company will be able to progress towards profitability.

Caveat Emptor

While we can certainly appreciate genOway Société anonyme’s revenue growth, its earnings before interest and tax (EBIT) loss is less than ideal. To be precise, the EBIT loss amounted to €789,000. On a more positive note, the company has cash, so it has some time to improve its operations before debt becomes an acute problem. But we’d be more likely to spend time trying to figure out the stock if the company was making a profit. So it seems too risky for our taste. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example genOway Société anonyme has 3 warning signs (and 1 that can’t be ignored) that we think you should know about.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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