Robit Oyj (HEL:ROBIT) Has Debt But No Earnings; Should You Worry?

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. Importantly, Robit Oyj (HEL:ROBIT) does carry 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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Robit Oyj

What Is Robit Oyj's Debt?

The chart below, which you can click on for greater detail, shows that Robit Oyj had €29.1m in debt in September 2023; about the same as the year before. However, it does have €7.35m in cash offsetting this, leading to net debt of about €21.7m.

How Strong Is Robit Oyj's Balance Sheet?

We can see from the most recent balance sheet that Robit Oyj had liabilities of €23.0m falling due within a year, and liabilities of €31.3m due beyond that. Offsetting these obligations, it had cash of €7.35m as well as receivables valued at €22.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €24.9m.

This deficit is considerable relative to its market capitalization of €26.8m, so it does suggest shareholders should keep an eye on Robit Oyj's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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 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.

In the last year Robit Oyj had a loss before interest and tax, and actually shrunk its revenue by 17%, to €94m. That's not what we would hope to see.

Caveat Emptor

Not only did Robit Oyj's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost €1.9m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 €4.8m. So in short it's a really risky stock. 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. Be aware that Robit Oyj is showing 1 warning sign in our investment analysis , you should know about...

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.