Is Barbara Bui (EPA: BUI) using debt in a risky way?
Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but whether you will suffer a 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. We can see that Barbara bui sa (EPA: BUI) uses debt in its operations. But does this debt worry shareholders?
When is debt a problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we think of a business’s use of debt, we first look at cash flow and debt together.
Check out our latest analysis for Barbara Bui
What is Barbara Bui’s net debt?
The image below, which you can click for more details, shows that in June 2021, Barbara Bui had a debt of 2.45 million euros, compared to 2.31 million euros in one year. However, he also had € 2.36m in cash, so his net debt was € 89.0k.
A look at Barbara Bui’s responsibilities
Zooming in on the latest balance sheet data, we can see that Barbara Bui had a liability of 6.33 million euros due within 12 months and a liability of 3.74 million euros due beyond. In compensation for these obligations, he had cash of € 2.36 million as well as receivables valued at € 2.06 million within 12 months. It therefore has a total liability of 5.65 M € more than its cash and short-term receivables combined.
This deficit is considerable compared to its market capitalization of 6.59 M €, so he suggests that shareholders keep an eye on Barbara Bui’s use of debt. If its lenders asked it to consolidate the balance sheet, shareholders would likely face serious dilution. Having practically no net debt, Barbara Bui is indeed very little in debt. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is Barbara Bui’s income that will influence the balance sheet in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
In the past year, Barbara Bui has incurred a loss before interest and taxes and has actually reduced her income by 10%, to € 7.9 million. We would much prefer to see the growth.
While Barbara Bui’s drop in income is about as heartwarming as a wet blanket, it’s fair to say that her earnings before interest and taxes (EBIT) are even less appealing. Indeed, it lost a very significant amount of € 1.9 million in terms of EBIT. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. Quite frankly, we think the record is far from up to par, although it could improve over time. However, it doesn’t help that he spent $ 66,000 in cash in the past year. Suffice it to say that we consider the action to be risky. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. For example, we have identified 3 warning signs for Barbara Bui (2 don’t sit too well with us) you should be aware.
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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