Is Remedy Entertainment Oyj (HEL:REMEDY) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Remedy Entertainment Oyj (HEL:REMEDY) does carry debt. But the real question is whether this debt is making the company risky.

We check all companies for important risks. See what we found for Remedy Entertainment Oyj in our free report.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Remedy Entertainment Oyj's Debt?

As you can see below, at the end of December 2024, Remedy Entertainment Oyj had €13.3m of debt, up from €918.0k a year ago. Click the image for more detail. However, it does have €41.1m in cash offsetting this, leading to net cash of €27.8m.

How Healthy Is Remedy Entertainment Oyj's Balance Sheet?

The latest balance sheet data shows that Remedy Entertainment Oyj had liabilities of €16.3m due within a year, and liabilities of €14.5m falling due after that. Offsetting these obligations, it had cash of €41.1m as well as receivables valued at €6.24m due within 12 months. So it can boast €16.5m 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. Succinctly put, Remedy Entertainment Oyj boasts net cash, so it's fair to say it does not have a heavy debt load! 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 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.

Check out our latest analysis for Remedy Entertainment Oyj

In the last year Remedy Entertainment Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 49%, to €51m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Remedy Entertainment Oyj?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Remedy Entertainment Oyj had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €2.5m and booked a €3.6m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of €27.8m. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Remedy Entertainment Oyj may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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.