Health Check: How Prudently Does Remedy Entertainment Oyj (HEL:REMEDY) Use Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that Remedy Entertainment Oyj (HEL:REMEDY) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

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 June 2023, down from €2.76m, one year before. But on the other hand it also has €28.9m in cash, leading to a €27.0m 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 €9.91m falling due within a year, and liabilities of €2.31m due beyond that. Offsetting this, it had €28.9m in cash and €18.8m in receivables that were due within 12 months. So it can boast €35.5m more liquid assets than total liabilities.

This surplus suggests that Remedy Entertainment Oyj has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Remedy Entertainment Oyj had a loss before interest and tax, and actually shrunk its revenue by 24%, to €37m. That makes us nervous, to say the least.

So How Risky Is Remedy Entertainment Oyj?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Remedy Entertainment Oyj had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €19m and booked a €9.5m accounting loss. Given it only has net cash of €27.0m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Remedy Entertainment Oyj you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.