We Think BBS-Bioactive Bone Substitutes Oyj (HEL:BONEH) Has A Fair Chunk Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that BBS-Bioactive Bone Substitutes Oyj (HEL:BONEH) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for BBS-Bioactive Bone Substitutes Oyj

What Is BBS-Bioactive Bone Substitutes Oyj's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2022 BBS-Bioactive Bone Substitutes Oyj had debt of €6.41m, up from €5.98m in one year. On the flip side, it has €3.39m in cash leading to net debt of about €3.02m.

A Look At BBS-Bioactive Bone Substitutes Oyj's Liabilities

The latest balance sheet data shows that BBS-Bioactive Bone Substitutes Oyj had liabilities of €2.37m due within a year, and liabilities of €4.77m falling due after that. Offsetting these obligations, it had cash of €3.39m as well as receivables valued at €345.9k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €3.41m.

While this might seem like a lot, it is not so bad since BBS-Bioactive Bone Substitutes Oyj has a market capitalization of €13.0m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since BBS-Bioactive Bone Substitutes Oyj will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Since BBS-Bioactive Bone Substitutes Oyj doesn't have significant operating revenue, shareholders may be hoping it comes up with a great new product, before it runs out of money.

Caveat Emptor

Over the last twelve months BBS-Bioactive Bone Substitutes Oyj produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable €2.8m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €2.7m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for BBS-Bioactive Bone Substitutes Oyj (of which 2 make us uncomfortable!) 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.