Is GreenMobility (CPH:GREENM) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies GreenMobility A/S (CPH:GREENM) makes use of debt. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

Check out our latest analysis for GreenMobility

What Is GreenMobility's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 GreenMobility had kr.24.6m of debt, an increase on none, over one year. But on the other hand it also has kr.130.1m in cash, leading to a kr.105.5m net cash position.

How Strong Is GreenMobility's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that GreenMobility had liabilities of kr.50.4m due within 12 months and liabilities of kr.71.6m due beyond that. Offsetting these obligations, it had cash of kr.130.1m as well as receivables valued at kr.11.2m due within 12 months. So it can boast kr.19.3m more liquid assets than total liabilities.

This short term liquidity is a sign that GreenMobility could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that GreenMobility has more cash than debt is arguably a good indication that it can manage its debt safely. 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 GreenMobility'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.

Over 12 months, GreenMobility reported revenue of kr.62m, which is a gain of 80%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is GreenMobility?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year GreenMobility had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through kr.47m of cash and made a loss of kr.49m. With only kr.105.5m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, GreenMobility may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that GreenMobility is showing 5 warning signs in our investment analysis , and 2 of those are a bit concerning...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.