Howard Marks put it right when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk that concerns me … and every investor I practice.” know worries ”. So it seems like smart money knows that debt – which is usually linked to bankruptcies – is a very important factor when you assess the risk of a business. We notice that Centro de Imagem Diagnósticos SA (BVMF: AALR3) has a debt on its balance sheet. But does this debt worry shareholders?
When is debt a problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap stock price just to get its debt under control. Of course, many companies use debt to finance growth without any negative consequences. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
Discover our latest analysis for Centro de Imagem Diagnósticos
How much debt does Centro de Imagem Diagnósticos have?
The image below, which you can click for more details, shows that in December 2020, the Centro de Imagem Diagnósticos had a debt of R $ 780.1 million, compared to R $ 593.2 million in a year. However, he has R $ 261.0 million in cash to compensate for this, which leads to a net debt of approximately R $ 519.1 million.
How healthy is the Centro de Imagem Diagnósticos balance sheet?
The latest balance sheet data show that Centro de Imagem Diagnósticos had liabilities of R $ 476.5 million due in one year, and liabilities of R $ 840.4 million due thereafter. On the other hand, he had cash of R $ 261.0 million and R $ 288.7 million in receivables due within one year. It therefore has liabilities totaling R $ 767.2 million more than its cash and short-term receivables combined.
While that might sound like a lot, it’s not so bad since Centro de Imagem Diagnósticos has a market capitalization of R $ 1.41 billion, and so it could probably strengthen its balance sheet by raising capital if needed. But it is clear that we absolutely need to take a close look at whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether Centro de Imagem Diagnósticos can strengthen its balance sheet over time. So if you are focused on the future you can check out this free report showing analysts’ earnings forecasts.
Last year, Centro de Imagem Diagnósticos suffered a loss before interest and taxes and in fact reduced its income by 13%, to R $ 929 million. We would much prefer to see the growth.
While Centro de Imagem Diagnósticos’s decline in revenue is about as comforting as a wet blanket, its earnings before interest and tax losses (EBIT) are arguably even less appealing. Indeed, he lost R $ 21 million in EBIT. When we look at this and recall the liabilities of its balance sheet, versus the cash flow, it seems unwise to us that the company has debts. Frankly, we think the record is far from adequate, although it could improve over time. We would feel better if she turned her 12-month loss of R $ 97 million into profit. So, to be frank, we think it’s risky. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. Concrete example: we have spotted 1 warning sign for Centro de Imagem Diagnósticos you have to be aware of it.
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
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