Aalborg Boldspilklub (CPH:AAB) Has Debt But No Earnings; Should You Worry?

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. We can see that Aalborg Boldspilklub A/S (CPH:AAB) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Aalborg Boldspilklub

What Is Aalborg Boldspilklub's Net Debt?

The chart below, which you can click on for greater detail, shows that Aalborg Boldspilklub had kr.19.4m in debt in December 2023; about the same as the year before. But it also has kr.39.5m in cash to offset that, meaning it has kr.20.1m net cash.

How Healthy Is Aalborg Boldspilklub's Balance Sheet?

According to the last reported balance sheet, Aalborg Boldspilklub had liabilities of kr.39.1m due within 12 months, and liabilities of kr.33.7m due beyond 12 months. Offsetting this, it had kr.39.5m in cash and kr.30.9m in receivables that were due within 12 months. So its liabilities total kr.2.41m more than the combination of its cash and short-term receivables.

Given Aalborg Boldspilklub has a market capitalization of kr.71.4m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Aalborg Boldspilklub boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Aalborg Boldspilklub's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Aalborg Boldspilklub made a loss at the EBIT level, and saw its revenue drop to kr.82m, which is a fall of 3.9%. We would much prefer see growth.

So How Risky Is Aalborg Boldspilklub?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Aalborg Boldspilklub lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of kr.22m and booked a kr.34m accounting loss. But at least it has kr.20.1m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Aalborg Boldspilklub you should be aware of, and 2 of them can't be ignored.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.