Does Solar Foods Oyj (HEL:SFOODS) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Solar Foods Oyj (HEL:SFOODS) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. 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. 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.

What Is Solar Foods Oyj's Debt?

The image below, which you can click on for greater detail, shows that Solar Foods Oyj had debt of €19.6m at the end of December 2024, a reduction from €20.9m over a year. However, it also had €13.4m in cash, and so its net debt is €6.19m.

How Healthy Is Solar Foods Oyj's Balance Sheet?

We can see from the most recent balance sheet that Solar Foods Oyj had liabilities of €7.18m falling due within a year, and liabilities of €16.6m due beyond that. Offsetting this, it had €13.4m in cash and €1.19m in receivables that were due within 12 months. So it has liabilities totalling €9.16m more than its cash and near-term receivables, combined.

Since publicly traded Solar Foods Oyj shares are worth a total of €178.8m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Solar Foods 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.

Check out our latest analysis for Solar Foods Oyj

Over 12 months, Solar Foods Oyj reported revenue of €4.4m, which is a gain of 50%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Solar Foods Oyj still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at €8.9m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled €11m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Solar Foods Oyj (including 2 which don't sit too well with us) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.