Is niiio finance group (ETR:NIIN) Using Debt In A Risky Way?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, niiio finance group AG (ETR:NIIN) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Our analysis indicates that NIIN is potentially undervalued!

What Is niiio finance group's Net Debt?

The chart below, which you can click on for greater detail, shows that niiio finance group had €5.30m in debt in June 2022; about the same as the year before. However, it does have €6.49m in cash offsetting this, leading to net cash of €1.18m.

A Look At niiio finance group's Liabilities

According to the last reported balance sheet, niiio finance group had liabilities of €5.38m due within 12 months, and liabilities of €7.48m due beyond 12 months. Offsetting this, it had €6.49m in cash and €557.6k in receivables that were due within 12 months. So its liabilities total €5.81m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because niiio finance group is worth €27.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, niiio finance group boasts net cash, so it's fair to say it does not have a heavy debt load! 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 niiio finance 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.

Over 12 months, niiio finance group reported revenue of €6.2m, which is a gain of 111%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is niiio finance group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that niiio finance group had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €5.6m and booked a €3.5m accounting loss. Given it only has net cash of €1.18m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that niiio finance group has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - niiio finance group has 4 warning signs we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.