Revenio Group Oyj (HEL:REG1V) Has A Rock Solid 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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Revenio Group Oyj (HEL:REG1V) does use debt in its business. But the real question is whether this debt is making the company risky.

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Revenio Group Oyj

How Much Debt Does Revenio Group Oyj Carry?

As you can see below, Revenio Group Oyj had €18.5m of debt at December 2022, down from €22.7m a year prior. However, it does have €32.1m in cash offsetting this, leading to net cash of €13.6m.

How Strong Is Revenio Group Oyj's Balance Sheet?

According to the last reported balance sheet, Revenio Group Oyj had liabilities of €25.7m due within 12 months, and liabilities of €19.5m due beyond 12 months. Offsetting these obligations, it had cash of €32.1m as well as receivables valued at €13.7m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

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 €1.09b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Revenio Group Oyj boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Revenio Group Oyj has boosted its EBIT by 31%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Revenio Group Oyj may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Revenio Group Oyj produced sturdy free cash flow equating to 77% 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 it is always sensible to investigate a company's debt, in this case Revenio Group Oyj has €13.6m in net cash and a decent-looking balance sheet. And we liked the look of last year's 31% year-on-year EBIT growth. 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.