Is FinTech Ventures (WSE:FIV) Using Too Much Debt?

Howard Marks put it nicely when he said that, instead of worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about… and every practical investor I know worries about.” It is only natural to consider a company’s balance sheet when examining how risky it is, as debt is often involved when a business collapses. As with many other companies FinTech Ventures SA (WSE:FIV) uses debt. But is this debt a concern for shareholders?

When is debt a problem?

Debt assists a business until the business has problems paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. Although less common, we often see indebted companies permanently draining shareholders because lenders force them to raise capital at a difficult price. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. The first step when assessing a company’s level of debt is to consider cash and debt together.

See our latest analysis for FinTech Ventures

What is FinTech Ventures’ net debt?

As you can see below, at the end of March 2022, FinTech Ventures had zł11.1 million in debt, up from zł 3.13 million a year ago. Click on the image for more details. However, it also had zł 966.8,000 in cash, and thus the net debt is zł 10.2 million.

How strong is FinTech Ventures’ balance sheet?

Zooming in on the latest balance sheet data, we can see that FinTech Ventures had liabilities of zł14.5 million due within 12 months and no liabilities beyond that. Offsetting this, it had zł966.8k in cash and zł31.4m in receivables due within 12 months. So it can boast zł17.8m more liquid assets than Total commitments.

This excess liquidity is a good indication that FinTech Ventures’ balance sheet is almost as strong as Fort Knox. With this in mind, we think the balance sheet is as strong as a bull. The balance sheet is clearly the area to focus on when analyzing debt. But it is FinTech Ventures’ earnings that will affect how the balance stays in the future. So when considering debt, it’s definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, FinTech Ventures reported revenues of zł2.1 million, which is a 69% gain, although they did not report any earnings before interest and tax. The shareholders are probably crossing their fingers that it can grow into a profit.

Caveat Emptor

Over the past twelve months, FinTech Ventures has produced earnings before interest and tax (EBIT). In fact, it lost a very significant zł10 million at the EBIT level. That said, we are impressed by the strong balance sheet liquidity. It will give the company some time and space to grow and develop the business as needed. While the stock is likely a bit risky, there could be an opportunity if the business itself improves, allowing the company to stage a recovery. When analyzing debt levels, the balance sheet is the obvious place to start. However, not all investment risk lies within the balance sheet – far from it. For example, we have identified 5 Warning Signs for FinTech Ventures which you should be aware of.

If you’re interested in investing in businesses that can grow profits without the burden of debt, check this one out free list of growing businesses that have net cash on their balance sheet.

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This article by Simply Wall St is general. We provide commentary based on historical data and analyst forecasts only using an objective 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. We aim to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.