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David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that CR Capital Real Estate AG (ETR:CRZK) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for CR Capital Real Estate
What Is CR Capital Real Estate's Debt?
You can click the graphic below for the historical numbers, but it shows that CR Capital Real Estate had €1.94m of debt in December 2018, down from €9.00m, one year before. However, its balance sheet shows it holds €3.94m in cash, so it actually has €2.00m net cash.
A Look At CR Capital Real Estate's Liabilities
We can see from the most recent balance sheet that CR Capital Real Estate had liabilities of €1.48m falling due within a year, and liabilities of €8.55m due beyond that. Offsetting this, it had €3.94m in cash and €267.8k in receivables that were due within 12 months. So it has liabilities totalling €5.83m more than its cash and near-term receivables, combined.
Given CR Capital Real Estate has a market capitalization of €86.9m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, CR Capital Real Estate also has more cash than debt, so we're pretty confident it can manage its debt safely.
Also good is that CR Capital Real Estate grew its EBIT at 16% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if CR Capital Real Estate can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.