Is Nixu Oyj (HEL:NIXU) Weighed On By Its Debt Load?

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. Importantly, Nixu Oyj (HEL:NIXU) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 Nixu Oyj

What Is Nixu Oyj's Debt?

As you can see below, Nixu Oyj had €7.26m of debt at June 2020, down from €9.87m a year prior. However, its balance sheet shows it holds €7.66m in cash, so it actually has €405.0k net cash.

How Strong Is Nixu Oyj's Balance Sheet?

According to the last reported balance sheet, Nixu Oyj had liabilities of €20.1m due within 12 months, and liabilities of €7.54m due beyond 12 months. Offsetting this, it had €7.66m in cash and €13.8m in receivables that were due within 12 months. So it has liabilities totalling €6.16m more than its cash and near-term receivables, combined.

Given Nixu Oyj has a market capitalization of €67.1m, 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. Despite its noteworthy liabilities, Nixu Oyj boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Nixu 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.

In the last year Nixu Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 18%, to €55m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Nixu Oyj?

While Nixu Oyj lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €4.9m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 1 warning sign for Nixu Oyj that you should be aware of before investing here.

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.

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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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