Here's Why MGI Digital Technology Société Anonyme (EPA:ALMDG) Can Manage Its Debt Responsibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 MGI Digital Technology Société Anonyme (EPA:ALMDG) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is MGI Digital Technology Société Anonyme's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 MGI Digital Technology Société Anonyme had debt of €10.2m, up from €8.28m in one year. However, it does have €29.4m in cash offsetting this, leading to net cash of €19.2m.

How Strong Is MGI Digital Technology Société Anonyme's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that MGI Digital Technology Société Anonyme had liabilities of €12.0m due within 12 months and liabilities of €15.8m due beyond that. Offsetting this, it had €29.4m in cash and €17.1m in receivables that were due within 12 months. So it actually has €18.8m more liquid assets than total liabilities.

This excess liquidity is a great indication that MGI Digital Technology Société Anonyme's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that MGI Digital Technology Société Anonyme has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for MGI Digital Technology Société Anonyme

In fact MGI Digital Technology Société Anonyme's saving grace is its low debt levels, because its EBIT has tanked 39% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if MGI Digital Technology Société Anonyme 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. MGI Digital Technology Société Anonyme may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Considering the last three years, MGI Digital Technology Société Anonyme actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While it is always sensible to investigate a company's debt, in this case MGI Digital Technology Société Anonyme has €19.2m in net cash and a decent-looking balance sheet. So we are not troubled with MGI Digital Technology Société Anonyme's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example MGI Digital Technology Société Anonyme has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.