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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. When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Figeac Aero Société Anonyme (EPA:FGA) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Figeac Aero Société Anonyme
How Much Debt Does Figeac Aero Société Anonyme Carry?
The image below, which you can click on for greater detail, shows that Figeac Aero Société Anonyme had debt of €343.5m at the end of March 2019, a reduction from €375.0m over a year. However, it also had €122.4m in cash, and so its net debt is €221.1m.
A Look At Figeac Aero Société Anonyme's Liabilities
Zooming in on the latest balance sheet data, we can see that Figeac Aero Société Anonyme had liabilities of €235.5m due within 12 months and liabilities of €376.7m due beyond that. Offsetting these obligations, it had cash of €122.4m as well as receivables valued at €116.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €373.5m.
This deficit is considerable relative to its market capitalization of €380.8m, so it does suggest shareholders should keep an eye on Figeac Aero Société Anonyme's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.