Revenio Group Oyj (HEL:REG1V) Seems To Use Debt Rather Sparingly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that Revenio Group Oyj (HEL:REG1V) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. 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.

See our latest analysis for Revenio Group Oyj

What Is Revenio Group Oyj's Debt?

You can click the graphic below for the historical numbers, but it shows that Revenio Group Oyj had €18.1m of debt in March 2023, down from €22.5m, one year before. But it also has €30.2m in cash to offset that, meaning it has €12.1m net cash.

How Strong Is Revenio Group Oyj's Balance Sheet?

According to the last reported balance sheet, Revenio Group Oyj had liabilities of €29.6m due within 12 months, and liabilities of €18.1m due beyond 12 months. Offsetting these obligations, it had cash of €30.2m as well as receivables valued at €12.5m due within 12 months. So it has liabilities totalling €5.00m 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 €640.3m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Revenio Group Oyj boasts net cash, so it's fair to say it does not have a heavy debt load!

Another good sign is that Revenio Group Oyj has been able to increase its EBIT by 27% in twelve months, making it easier to pay down debt. 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 Revenio Group Oyj 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.

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. Over the most recent three years, Revenio Group Oyj recorded free cash flow worth 74% 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

While it is always sensible to look at a company's total liabilities, it is very reassuring that Revenio Group Oyj has €12.1m in net cash. And it impressed us with its EBIT growth of 27% over the last year. So is Revenio Group Oyj's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Revenio Group Oyj is showing 1 warning sign in our investment analysis , you should know about...

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.