Does Remedy Entertainment Oyj (HEL:REMEDY) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Remedy Entertainment Oyj (HEL:REMEDY) does use debt in its business. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Remedy Entertainment Oyj

What Is Remedy Entertainment Oyj's Debt?

You can click the graphic below for the historical numbers, but it shows that Remedy Entertainment Oyj had €1.84m of debt in December 2022, down from €2.76m, one year before. But on the other hand it also has €52.9m in cash, leading to a €51.0m net cash position.

How Strong Is Remedy Entertainment Oyj's Balance Sheet?

We can see from the most recent balance sheet that Remedy Entertainment Oyj had liabilities of €10.1m falling due within a year, and liabilities of €1.15m due beyond that. On the other hand, it had cash of €52.9m and €15.3m worth of receivables due within a year. So it can boast €57.0m more liquid assets than total liabilities.

It's good to see that Remedy Entertainment Oyj has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Remedy Entertainment Oyj has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Remedy Entertainment 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.

In the last year Remedy Entertainment Oyj had a loss before interest and tax, and actually shrunk its revenue by 2.5%, to €44m. We would much prefer see growth.

So How Risky Is Remedy Entertainment Oyj?

Although Remedy Entertainment Oyj had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of €411k. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Remedy Entertainment Oyj's profit, revenue, and operating cashflow have changed over the last few years.

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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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.