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

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Revenio Group Oyj (HEL:REG1V) makes use of 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Revenio Group Oyj

What Is Revenio Group Oyj's Net Debt?

As you can see below, Revenio Group Oyj had €22.5m of debt at March 2022, down from €26.0m a year prior. However, its balance sheet shows it holds €22.6m in cash, so it actually has €100.0k net cash.

How Strong Is Revenio Group Oyj's Balance Sheet?

According to the last reported balance sheet, Revenio Group Oyj had liabilities of €17.6m due within 12 months, and liabilities of €22.6m due beyond 12 months. On the other hand, it had cash of €22.6m and €9.70m worth of receivables due within a year. So it has liabilities totalling €7.90m 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 it's very unlikely that the €1.18b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Revenio Group Oyj also has more cash than debt, so we're pretty confident it can manage its debt safely.

Also positive, Revenio Group Oyj grew its EBIT by 21% in the last year, and that should make it easier to pay down debt, going forward. 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 Revenio Group Oyj's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Revenio Group Oyj has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Revenio Group Oyj recorded free cash flow worth 75% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing up

We could understand if investors are concerned about Revenio Group Oyj's liabilities, but we can be reassured by the fact it has has net cash of €100.0k. And it impressed us with free cash flow of €18m, being 75% of its EBIT. So is Revenio Group Oyj's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Revenio Group Oyj's earnings per share history for free.

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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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.