Here's Why Nexstim (HEL:NXTMH) Can Afford Some 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 can see that Nexstim Plc (HEL:NXTMH) does use debt in its business. But should shareholders be worried about its use of debt?

We've discovered 2 warning signs about Nexstim. View them for free.

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. 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.

What Is Nexstim's Net Debt?

As you can see below, at the end of December 2024, Nexstim had €5.36m of debt, up from €4.44m a year ago. Click the image for more detail. However, it also had €3.86m in cash, and so its net debt is €1.50m.

A Look At Nexstim's Liabilities

According to the last reported balance sheet, Nexstim had liabilities of €6.26m due within 12 months, and liabilities of €4.24m due beyond 12 months. Offsetting these obligations, it had cash of €3.86m as well as receivables valued at €4.00m due within 12 months. So its liabilities total €2.63m more than the combination of its cash and short-term receivables.

Given Nexstim has a market capitalization of €57.2m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Nexstim can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for Nexstim

In the last year Nexstim wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to €10m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Nexstim produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €296k. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of €892k. So to be blunt we do think it is risky. 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. For instance, we've identified 2 warning signs for Nexstim that 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.