Is Continental (ETR:CON) A Risky Investment?

“The biggest investment risk is not price volatility, but whether we suffer a permanent loss of capital,” says Lee Lu, an external fund manager backed by Berkshire Hathaway’s Charlie Munger. .When I think about how risky a company is, I always like to look to the use of debt as too much debt can lead to bankruptcy. Continental Corporation (ETR:CON) uses debt. But the real question is whether this debt puts the company at risk.

when debt is dangerous

Generally speaking, debt becomes a real problem only when a company raises capital or cannot easily repay it with its own cash flow. If things get really bad, the lender will have control over the business. But the more common (but still painful) scenario is that shareholders are permanently diluted as they have to raise new capital at a lower price. But by displacing dilution, debt can be a very good tool for companies that need capital to invest in growth at high returns. First, we look at both cash and debt levels together.

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How much debt does Continental have?

You can click the chart below for historical figures, but as of September 2022, Continental has a debt of €8.51 billion, up from €6.57 billion over the year. I understand. Conversely, it has cash of €2.26 billion and net debt of approximately €6.25 billion.

XTRA:CON Debt to Equity History Dec 22, 2022

Look at Continental’s debt

The latest balance sheet shows that Continental has €17.7 billion of debt due within one year and €6.91 billion of debt due after that. On the other hand, there was €2.26 billion in cash and €9.7 billion worth of his receivables to be paid within a year. The company’s liabilities therefore exceed its combined cash and (short-term) receivables by €12.7 billion.

Given that this shortfall exceeds the company’s massive market capitalization of €11.4bn, it might tend to take a hard look at its balance sheet. Hypothetically, if the company were forced to pay down its debt by raising capital at its current share price, it would require a very large amount of dilution. Arguably, we learn the most about debt from the balance sheet. But future earnings will determine, more than anything else, whether Continental will be able to maintain a healthy balance sheet going forward.So if you are focused on the future check this out freedom A report that shows an analyst’s profit forecast.

Last year, Continental was unprofitable at the EBIT level, but increased revenue by 11% to €38 billion. Its growth rate is a little slow for our liking, but we need all types to make the world.

Buyer’s responsibility

Over the last 12 months, Continental posted a loss in Earnings Before Interest (EBIT). His EBIT loss was a whopping €1.2 billion. Looking at it alongside significant debt, we’re not particularly confident about the company. Especially since in the last 12 months he had a negative free cash flow of €1.2 billion. That means you’re on the riskier side. Arguably, we learn the most about debt from the balance sheet. However, not all investment risks are on the balance sheet, far from it. To do so, you should be aware of the following: two warning signs Found in Continental.

Check this out if you’re interested in investing in a profitable business without debt. freedom List of growth companies with net cash on their balance sheets.

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find out if continental You may be overestimated or underestimated by checking out our comprehensive analysis including: Fair value estimates, risks and warnings, dividends, insider trading and financial health.

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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …

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