Yahoo Finance Fox Marble Holdings (LON:FOX) Is Carrying A Fair Bit Of Debt
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. We can see that Fox Marble Holdings PLC (LON:FOX) does use debt in its business. But the more important question is: how much risk is that debt creating?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for Fox Marble Holdings
What Is Fox Marble Holdings's Net Debt?
As you can see below, at the end of June 2019, Fox Marble Holdings had €4.07m of debt, up from €861.0k a year ago. Click the image for more detail. On the flip side, it has €734.0k in cash leading to net debt of about €3.34m.
How Strong Is Fox Marble Holdings's Balance Sheet?
We can see from the most recent balance sheet that Fox Marble Holdings had liabilities of €1.18m falling due within a year, and liabilities of €4.07m due beyond that. Offsetting this, it had €734.0k in cash and €667.0k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €3.85m.
This deficit isn't so bad because Fox Marble Holdings is worth €10.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Fox Marble Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year Fox Marble Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by21%, to €1.8m. With any luck the company will be able to grow its way to profitability.
Caveat Emptor
Despite the top line growth, Fox Marble Holdings still had negative earnings before interest and tax (EBIT), over the last year. Indeed, it lost a very considerable €2.1m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled €2.3m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Fox Marble Holdings's profit, revenue, and operating cashflow have changed over the last few years.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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