Auditors Have Doubts About Afarak Group Oyj (HEL:AFAGR)

When Afarak Group Oyj (HEL:AFAGR) reported its results to December 2020 its auditors, Ernst & Young LLP could not be sure that it would be able to continue as a going concern in the next year. Thus we can say that, based on the results to that date, the company should raise capital or otherwise raise cash, without much delay.

If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So shareholders should absolutely be taking a close look at how risky the balance sheet is. Debt is always a risk factor in these cases, as creditors could be in a position to wind up the company, in the worst case scenario.

View our latest analysis for Afarak Group Oyj

How Much Debt Does Afarak Group Oyj Carry?

You can click the graphic below for the historical numbers, but it shows that Afarak Group Oyj had €48.9m of debt in December 2020, down from €59.8m, one year before. However, it also had €1.10m in cash, and so its net debt is €47.8m.

How Healthy Is Afarak Group Oyj's Balance Sheet?

The latest balance sheet data shows that Afarak Group Oyj had liabilities of €32.0m due within a year, and liabilities of €80.8m falling due after that. On the other hand, it had cash of €1.10m and €11.9m worth of receivables due within a year. So its liabilities total €99.7m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the €57.8m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, Afarak Group Oyj would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Afarak Group Oyj's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Afarak Group Oyj had a loss before interest and tax, and actually shrunk its revenue by 39%, to €60m. That makes us nervous, to say the least.

Caveat Emptor

While Afarak Group Oyj's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping €30m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of €5.4m over the last twelve months. So suffice it to say we consider the stock to be risky. We prefer to avoid a company after its auditor has expressed any uncertainty about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. 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. For instance, we've identified 5 warning signs for Afarak Group Oyj (3 are potentially serious) you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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