Is Revenio Group Oyj (HEL:REG1V) A Risky Investment?

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 Revenio Group Oyj (HEL:REG1V) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

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 €10.1m of debt in December 2024, down from €14.3m, one year before. But on the other hand it also has €20.7m in cash, leading to a €10.6m net cash position.

A Look At Revenio Group Oyj's Liabilities

According to the last reported balance sheet, Revenio Group Oyj had liabilities of €21.6m due within 12 months, and liabilities of €12.0m due beyond 12 months. Offsetting this, it had €20.7m in cash and €16.2m in receivables that were due within 12 months. So it can boast €3.27m more liquid assets than total liabilities.

This state of affairs indicates that Revenio Group Oyj's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the €606.4m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Revenio Group Oyj boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Revenio Group Oyj

But the other side of the story is that Revenio Group Oyj saw its EBIT decline by 2.3% over the last year. If earnings continue to decline at that rate the company may have increasing difficulty managing its 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 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. 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. During the last three years, Revenio Group Oyj produced sturdy free cash flow equating to 59% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Revenio Group Oyj has net cash of €10.6m, as well as more liquid assets than liabilities. So we don't think Revenio Group Oyj's use of debt is risky. 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.

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.