Is Scandinavian Astor Group (FRA:Y73) A Risky Investment?

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. Importantly, Scandinavian Astor Group AB (publ) (FRA:Y73) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Scandinavian Astor Group's Debt?

As you can see below, at the end of March 2025, Scandinavian Astor Group had kr64.8m of debt, up from kr51.6m a year ago. Click the image for more detail. However, it does have kr25.1m in cash offsetting this, leading to net debt of about kr39.7m.

How Strong Is Scandinavian Astor Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Scandinavian Astor Group had liabilities of kr124.3m due within 12 months and liabilities of kr103.7m due beyond that. Offsetting this, it had kr25.1m in cash and kr54.9m in receivables that were due within 12 months. So it has liabilities totalling kr148.0m more than its cash and near-term receivables, combined.

Since publicly traded Scandinavian Astor Group shares are worth a total of kr1.88b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time.

See our latest analysis for Scandinavian Astor Group

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Even though Scandinavian Astor Group's debt is only 1.6, its interest cover is really very low at 2.1. In large part that's it has so much depreciation and amortisation. While companies often boast that these charges are non-cash, most such businesses will therefore require ongoing investment (that is not expensed.) Either way there's no doubt the stock is using meaningful leverage. Notably, Scandinavian Astor Group made a loss at the EBIT level, last year, but improved that to positive EBIT of kr8.7m in the last twelve months. 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 Scandinavian Astor Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. During the last year, Scandinavian Astor Group burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

While Scandinavian Astor Group's interest cover makes us cautious about it, its track record of converting EBIT to free cash flow is no better. But its not so bad at staying on top of its total liabilities. When we consider all the factors discussed, it seems to us that Scandinavian Astor Group is taking some risks with its use of debt. While that debt can boost returns, we think the company has enough leverage now. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Scandinavian Astor Group (of which 2 are a bit unpleasant!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.