Would Bittium Oyj (HEL:BITTI) Be Better Off With Less 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. Importantly, Bittium Oyj (HEL:BITTI) does carry debt. 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. If things get really bad, the lenders can take control of the business. 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 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 €20.0m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have €8.33m in cash offsetting this, leading to net debt of about €11.7m.

How Healthy Is Bittium Oyj's Balance Sheet?

We can see from the most recent balance sheet that Bittium Oyj had liabilities of €48.3m falling due within a year, and liabilities of €1.78m due beyond that. On the other hand, it had cash of €8.33m and €35.7m worth of receivables due within a year. So it has liabilities totalling €6.00m more than its cash and near-term receivables, combined.

Given Bittium Oyj has a market capitalization of €254.1m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Bittium Oyj's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Bittium Oyj made a loss at the EBIT level, and saw its revenue drop to €76m, which is a fall of 9.0%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Bittium Oyj produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €4.3m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled €6.5m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Bittium Oyj that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.