David Iben expressed it well when he said: “Volatility is not a risk that is close to our hearts. What matters to us is to avoid the permanent loss of capital. ‘ So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. Above all, Rollatainers Limited (NSE: ROLLT) is in debt. But does this debt concern shareholders?
When is debt a problem?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth without negative consequences. When we think of a business’s use of debt, we first look at cash flow and debt together.
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What is Rollatainers net debt?
You can click on the graph below for historical figures, but it shows that Rollatainers had a debt of 247.3 million yen in March 2021, down from 1.64 billion yen a year earlier. However, since it has a cash reserve of 11.0 million yen, its net debt is less, at around 236.3 million yen.
A look at the responsibilities of Rollatainers
We can see from the most recent balance sheet that Rollatainers had liabilities of 905.9 million yen due within one year and liabilities of 260.7 million yen beyond. In return, he had ₹ 11.0m in cash and ₹ 262.5m in receivables due within 12 months. It therefore has a liability totaling 893.1 million yen more than its cash and short-term receivables combined.
The lack here weighs heavily on the 557.8million yen company itself, as if a child struggles under the weight of a huge backpack full of books, his gym equipment and a trumpet. . So we would be watching its record closely, without a doubt. After all, Rollatainers would likely need a major recapitalization if they were to pay their creditors today. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in isolation; since the Rollatainers will need income to pay off this debt. So if you want to know more about its profits, it may be worth checking out this chart of its long term profit trend.
Over 12 months, Rollatainers recorded a loss in EBIT and saw its turnover fall to 584 million, a decrease of 59%. It makes us nervous, to say the least.
While Rollatainers’ decline in income is about as comforting as a wet blanket, its earnings before interest and taxes (EBIT) can be said to be even less attractive. Indeed, it lost a very considerable amount of 293 million euros at the EBIT level. Considering that aside from the liabilities mentioned above, we are nervous about the business. It would have to improve its operation quickly for us to take an interest in it. Notably because it had negative free cash flow of 14 million euros over the past twelve months. So suffice it to say that we consider the title to be risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. We have identified 4 warning signs with Rollatainers (at least 3 of which are significant), and understanding them should be part of your investment process.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.
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