Would EcoUp Oyj (HEL:ECOUP) Be Better Off With Less Debt?

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 note that EcoUp Oyj (HEL:ECOUP) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for EcoUp Oyj

What Is EcoUp Oyj's Net Debt?

You can click the graphic below for the historical numbers, but it shows that EcoUp Oyj had €5.25m of debt in June 2024, down from €6.32m, one year before. On the flip side, it has €297.0k in cash leading to net debt of about €4.95m.

How Strong Is EcoUp Oyj's Balance Sheet?

We can see from the most recent balance sheet that EcoUp Oyj had liabilities of €6.32m falling due within a year, and liabilities of €4.65m due beyond that. Offsetting this, it had €297.0k in cash and €3.44m in receivables that were due within 12 months. So it has liabilities totalling €7.23m more than its cash and near-term receivables, combined.

This deficit isn't so bad because EcoUp Oyj is worth €16.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if EcoUp Oyj can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year EcoUp Oyj had a loss before interest and tax, and actually shrunk its revenue by 17%, to €29m. That's not what we would hope to see.

Caveat Emptor

While EcoUp Oyj's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €1.3m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €227k in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. For instance, we've identified 2 warning signs for EcoUp Oyj (1 doesn't sit too well with us) you should be aware of.

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.