We Think Gofore Oyj (HEL:GOFORE) Can Stay On Top Of Its 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 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. Importantly, Gofore Oyj (HEL:GOFORE) does carry debt. But the more important question is: how much risk is that debt creating?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

How Much Debt Does Gofore Oyj Carry?

As you can see below, Gofore Oyj had €8.92m of debt at December 2024, down from €13.4m a year prior. But it also has €57.6m in cash to offset that, meaning it has €48.7m net cash.

How Healthy Is Gofore Oyj's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Gofore Oyj had liabilities of €46.3m due within 12 months and liabilities of €19.7m due beyond that. Offsetting this, it had €57.6m in cash and €25.4m in receivables that were due within 12 months. So it can boast €17.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Gofore Oyj could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Gofore Oyj has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Gofore Oyj

On the other hand, Gofore Oyj's EBIT dived 11%, over the last year. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Gofore 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 .

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Gofore 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. Over the last three years, Gofore Oyj actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Gofore Oyj has €48.7m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of €36m, being 122% of its EBIT. So is Gofore Oyj's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Gofore Oyj, you may well want to click here to check an interactive graph of its earnings per share history .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.