F-Secure Oyj (HEL:FSC1V) Has A Rock Solid Balance Sheet

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 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 note that F-Secure Oyj (HEL:FSC1V) does have debt on its balance sheet. 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for F-Secure Oyj

What Is F-Secure Oyj's Debt?

The chart below, which you can click on for greater detail, shows that F-Secure Oyj had €30.0m in debt in December 2020; about the same as the year before. But it also has €51.4m in cash to offset that, meaning it has €21.4m net cash.

How Strong Is F-Secure Oyj's Balance Sheet?

The latest balance sheet data shows that F-Secure Oyj had liabilities of €104.9m due within a year, and liabilities of €50.6m falling due after that. Offsetting this, it had €51.4m in cash and €51.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €52.3m.

Since publicly traded F-Secure Oyj shares are worth a total of €606.7m, it seems unlikely that this level of liabilities would be a major 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, F-Secure Oyj boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, F-Secure Oyj grew its EBIT by 249% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine F-Secure 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While F-Secure Oyj has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, F-Secure Oyj actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that F-Secure Oyj has €21.4m in net cash. And it impressed us with free cash flow of €39m, being 143% of its EBIT. So we don't think F-Secure Oyj's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of F-Secure Oyj's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. 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.
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