Is Robit Oyj (HEL:ROBIT) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Robit Oyj (HEL:ROBIT) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Robit Oyj

What Is Robit Oyj's Debt?

As you can see below, Robit Oyj had €30.8m of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has €13.2m in cash leading to net debt of about €17.6m.

How Healthy Is Robit Oyj's Balance Sheet?

We can see from the most recent balance sheet that Robit Oyj had liabilities of €29.1m falling due within a year, and liabilities of €27.8m due beyond that. Offsetting these obligations, it had cash of €13.2m as well as receivables valued at €21.7m due within 12 months. So it has liabilities totalling €22.0m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Robit Oyj has a market capitalization of €79.5m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Robit Oyj'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, Robit Oyj reported revenue of €90m, which is a gain of 8.4%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Robit Oyj produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €3.4m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of €6.0m. So we do think this stock is quite risky. 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. Case in point: We've spotted 2 warning signs for Robit Oyj you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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