These 4 Measures Indicate That F-Secure Oyj (HEL:FSC1V) Is Using Debt Safely

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 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. As with many other companies F-Secure Oyj (HEL:FSC1V) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for F-Secure Oyj

What Is F-Secure Oyj's Debt?

As you can see below, F-Secure Oyj had €25.0m of debt at March 2021, down from €31.0m a year prior. However, it does have €47.2m in cash offsetting this, leading to net cash of €22.2m.

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

The latest balance sheet data shows that F-Secure Oyj had liabilities of €103.8m due within a year, and liabilities of €53.1m falling due after that. Offsetting this, it had €47.2m in cash and €56.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €53.0m.

Given F-Secure Oyj has a market capitalization of €657.2m, 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. While it does have liabilities worth noting, F-Secure Oyj also has more cash than debt, so we're pretty confident it can manage its debt safely.

Even more impressive was the fact that F-Secure Oyj grew its EBIT by 154% over twelve months. That boost will make it even easier to pay down debt going forward. 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 F-Secure Oyj can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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

We could understand if investors are concerned about F-Secure Oyj's liabilities, but we can be reassured by the fact it has has net cash of €22.2m. And it impressed us with free cash flow of €35m, being 138% of its EBIT. So is F-Secure Oyj's debt a risk? It doesn't seem so to us. 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.

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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