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.' 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. We can see that Bittium Oyj (HEL:BITTI) does use debt in its business. But the more important question is: how much risk is that debt creating?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 Bittium Oyj
How Much Debt Does Bittium Oyj Carry?
As you can see below, Bittium Oyj had €19.9m of debt at June 2021, down from €21.2m a year prior. However, it also had €18.8m in cash, and so its net debt is €1.11m.
A Look At Bittium Oyj's Liabilities
The latest balance sheet data shows that Bittium Oyj had liabilities of €27.3m due within a year, and liabilities of €21.7m falling due after that. Offsetting these obligations, it had cash of €18.8m as well as receivables valued at €35.4m due within 12 months. So it actually has €5.20m more liquid assets than total liabilities.
This surplus suggests that Bittium Oyj has a conservative balance sheet, and could probably eliminate its debt without much difficulty. But either way, Bittium Oyj has virtually no net debt, so it's fair to say it does not have a heavy debt load! 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 Bittium 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 Bittium Oyj had a loss before interest and tax, and actually shrunk its revenue by 10%, to €76m. We would much prefer see growth.
Caveat Emptor
Not only did Bittium Oyj's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at €1.6m. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. So it seems too risky for our taste. 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 Bittium Oyj's profit, revenue, and operating cashflow have changed over the last few years.
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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About HLSE:BITTI
Bittium Oyj
Provides solutions for communications and connectivity, healthcare technology products and services, and biosignal measuring and monitoring in Finland, Germany, and the United States.
Excellent balance sheet and slightly overvalued.