Does Efecte Oy (HEL:EFECTE) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Efecte Oy (HEL:EFECTE) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Efecte Oy

How Much Debt Does Efecte Oy Carry?

The image below, which you can click on for greater detail, shows that at June 2023 Efecte Oy had debt of €1.72m, up from none in one year. But on the other hand it also has €3.48m in cash, leading to a €1.76m net cash position.

A Look At Efecte Oy's Liabilities

Zooming in on the latest balance sheet data, we can see that Efecte Oy had liabilities of €11.6m due within 12 months and liabilities of €1.43m due beyond that. On the other hand, it had cash of €3.48m and €5.22m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €4.32m.

Given Efecte Oy has a market capitalization of €44.8m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Efecte Oy boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Efecte Oy'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, Efecte Oy reported revenue of €23m, which is a gain of 21%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Efecte Oy?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Efecte Oy had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €1.2m and booked a €1.6m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of €1.76m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Efecte Oy may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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 instance, we've identified 1 warning sign for Efecte Oy that you should be aware of.

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.