Is QPR Software Oyj (HEL:QPR1V) Using Debt In A Risky Way?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, QPR Software Oyj (HEL:QPR1V) does carry 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 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for QPR Software Oyj

How Much Debt Does QPR Software Oyj Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 QPR Software Oyj had €1.50m of debt, an increase on €700.0k, over one year. But on the other hand it also has €1.92m in cash, leading to a €418.0k net cash position.

A Look At QPR Software Oyj's Liabilities

According to the balance sheet data, QPR Software Oyj had liabilities of €4.67m due within 12 months, but no longer term liabilities. Offsetting these obligations, it had cash of €1.92m as well as receivables valued at €2.21m due within 12 months. So its liabilities total €546.0k more than the combination of its cash and short-term receivables.

Given QPR Software Oyj has a market capitalization of €10.0m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, QPR Software Oyj boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine QPR Software Oyj's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, QPR Software Oyj made a loss at the EBIT level, and saw its revenue drop to €8.3m, which is a fall of 9.5%. We would much prefer see growth.

So How Risky Is QPR Software Oyj?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year QPR Software Oyj had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €2.4m of cash and made a loss of €2.3m. However, it has net cash of €418.0k, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that QPR Software Oyj is showing 5 warning signs in our investment analysis , you should know about...

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. 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.