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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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, All for One Group AG (ETR:A1OS) does carry debt. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. 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 think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for All for One Group
What Is All for One Group's Debt?
As you can see below, All for One Group had €24.2m of debt at June 2019, down from €29.7m a year prior. However, its balance sheet shows it holds €29.3m in cash, so it actually has €5.11m net cash.
How Healthy Is All for One Group's Balance Sheet?
We can see from the most recent balance sheet that All for One Group had liabilities of €68.3m falling due within a year, and liabilities of €38.5m due beyond that. Offsetting this, it had €29.3m in cash and €50.5m in receivables that were due within 12 months. So it has liabilities totalling €27.0m more than its cash and near-term receivables, combined.
Since publicly traded All for One Group shares are worth a total of €207.7m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, All for One Group boasts net cash, so it's fair to say it does not have a heavy debt load!
On the other hand, All for One Group's EBIT dived 15%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine All for One Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.