Does LeadDesk Oy (HEL:LEADD) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 LeadDesk Oy (HEL:LEADD) makes use of 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

View our latest analysis for LeadDesk Oy

How Much Debt Does LeadDesk Oy Carry?

As you can see below, LeadDesk Oy had €7.96m of debt at December 2022, down from €9.36m a year prior. However, it does have €2.58m in cash offsetting this, leading to net debt of about €5.38m.

A Look At LeadDesk Oy's Liabilities

Zooming in on the latest balance sheet data, we can see that LeadDesk Oy had liabilities of €9.33m due within 12 months and liabilities of €5.87m due beyond that. On the other hand, it had cash of €2.58m and €4.70m worth of receivables due within a year. So it has liabilities totalling €7.91m more than its cash and near-term receivables, combined.

Since publicly traded LeadDesk Oy shares are worth a total of €56.1m, 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. 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 LeadDesk Oy 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.

In the last year LeadDesk Oy wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to €28m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, LeadDesk Oy had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at €1.5m. 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 €1.1m in negative free cash flow over the last twelve months. So to be blunt we think it is 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 2 warning signs for LeadDesk Oy that you should be aware of before investing here.

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.