Does Honkarakenne Oyj (HEL:HONBS) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies Honkarakenne Oyj (HEL:HONBS) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Honkarakenne Oyj Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Honkarakenne Oyj had €4.10m of debt, an increase on €3.70m, over one year. However, it does have €5.00m in cash offsetting this, leading to net cash of €900.0k.

How Healthy Is Honkarakenne Oyj's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Honkarakenne Oyj had liabilities of €13.1m due within 12 months and liabilities of €3.70m due beyond that. Offsetting these obligations, it had cash of €5.00m as well as receivables valued at €2.90m due within 12 months. So its liabilities total €8.90m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €14.1m, so it does suggest shareholders should keep an eye on Honkarakenne Oyj's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, Honkarakenne Oyj boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Honkarakenne 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.

View our latest analysis for Honkarakenne Oyj

In the last year Honkarakenne Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 2.9%, to €39m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Honkarakenne Oyj?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Honkarakenne Oyj had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €2.6m and booked a €1.8m accounting loss. But at least it has €900.0k on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Case in point: We've spotted 2 warning signs for Honkarakenne Oyj you should be aware of, and 1 of them is concerning.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.