Does NTG Nordic Transport Group (CPH:NTG) Have A Healthy Balance Sheet?

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.' 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 NTG Nordic Transport Group A/S (CPH:NTG) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for NTG Nordic Transport Group

What Is NTG Nordic Transport Group's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 NTG Nordic Transport Group had kr.126.9m of debt, an increase on kr.27.2m, over one year. But on the other hand it also has kr.163.9m in cash, leading to a kr.37.0m net cash position.

How Strong Is NTG Nordic Transport Group's Balance Sheet?

According to the last reported balance sheet, NTG Nordic Transport Group had liabilities of kr.1.82b due within 12 months, and liabilities of kr.811.9m due beyond 12 months. Offsetting this, it had kr.163.9m in cash and kr.1.46b in receivables that were due within 12 months. So it has liabilities totalling kr.1.01b more than its cash and near-term receivables, combined.

Since publicly traded NTG Nordic Transport Group shares are worth a total of kr.7.34b, 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. While it does have liabilities worth noting, NTG Nordic Transport Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

In addition to that, we're happy to report that NTG Nordic Transport Group has boosted its EBIT by 85%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine NTG Nordic Transport 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While NTG Nordic Transport Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, NTG Nordic Transport Group actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

While NTG Nordic Transport Group does have more liabilities than liquid assets, it also has net cash of kr.37.0m. The cherry on top was that in converted 108% of that EBIT to free cash flow, bringing in kr.531m. So we don't think NTG Nordic Transport Group's use of debt is risky. 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. Case in point: We've spotted 1 warning sign for NTG Nordic Transport Group you should be aware of.

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.