In This Article:
Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Centogene N.V. (NASDAQ:CNTG) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Centogene
What Is Centogene's Net Debt?
As you can see below, Centogene had €5.12m of debt at September 2020, down from €6.29m a year prior. But it also has €28.7m in cash to offset that, meaning it has €23.6m net cash.
A Look At Centogene's Liabilities
We can see from the most recent balance sheet that Centogene had liabilities of €34.3m falling due within a year, and liabilities of €28.1m due beyond that. Offsetting this, it had €28.7m in cash and €27.1m in receivables that were due within 12 months. So its liabilities total €6.58m more than the combination of its cash and short-term receivables.
Of course, Centogene has a market capitalization of €214.6m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Centogene boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Centogene can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Centogene reported revenue of €73m, which is a gain of 68%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.