Does Revenio Group Oyj (HEL:REG1V) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Revenio Group Oyj (HEL:REG1V) does carry debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Revenio Group Oyj

How Much Debt Does Revenio Group Oyj Carry?

You can click the graphic below for the historical numbers, but it shows that Revenio Group Oyj had €24.5m of debt in September 2021, down from €28.8m, one year before. However, it does have €16.5m in cash offsetting this, leading to net debt of about €8.00m.

How Healthy Is Revenio Group Oyj's Balance Sheet?

The latest balance sheet data shows that Revenio Group Oyj had liabilities of €16.4m due within a year, and liabilities of €24.4m falling due after that. Offsetting these obligations, it had cash of €16.5m as well as receivables valued at €8.50m due within 12 months. So it has liabilities totalling €15.8m more than its cash and near-term receivables, combined.

Having regard to Revenio Group Oyj's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €1.48b company is struggling for cash, we still think it's worth monitoring its balance sheet. Carrying virtually no net debt, Revenio Group Oyj has a very light debt load indeed.

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Revenio Group Oyj has a low net debt to EBITDA ratio of only 0.34. And its EBIT covers its interest expense a whopping 671 times over. So we're pretty relaxed about its super-conservative use of debt. In addition to that, we're happy to report that Revenio Group Oyj has boosted its EBIT by 72%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Revenio Group 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Over the most recent three years, Revenio Group Oyj recorded free cash flow worth 78% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Our View

Revenio Group Oyj's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its EBIT growth rate also supports that impression! We would also note that Medical Equipment industry companies like Revenio Group Oyj commonly do use debt without problems. It looks Revenio Group Oyj has no trouble standing on its own two feet, and it has no reason to fear its lenders. For investing nerds like us its balance sheet is almost charming. Over time, share prices tend to follow earnings per share, so if you're interested in Revenio Group Oyj, you may well want to click here to check an interactive graph of its earnings per share history.

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.