QPR Software Oyj (HEL:QPR1V) Is Making Moderate Use Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, QPR Software Oyj (HEL:QPR1V) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for QPR Software Oyj

What Is QPR Software Oyj's Net Debt?

The chart below, which you can click on for greater detail, shows that QPR Software Oyj had €1.50m in debt in December 2023; about the same as the year before. However, because it has a cash reserve of €884.0k, its net debt is less, at about €616.0k.

A Look At QPR Software Oyj's Liabilities

The latest balance sheet data shows that QPR Software Oyj had liabilities of €4.33m due within a year, and liabilities of €1.19m falling due after that. Offsetting this, it had €884.0k in cash and €1.71m in receivables that were due within 12 months. So it has liabilities totalling €2.93m more than its cash and near-term receivables, combined.

QPR Software Oyj has a market capitalization of €7.17m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. 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.

In the last year QPR Software Oyj had a loss before interest and tax, and actually shrunk its revenue by 3.5%, to €7.6m. We would much prefer see growth.

Caveat Emptor

Importantly, QPR Software Oyj had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €813k. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of €924k. So to be blunt we do 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. Case in point: We've spotted 3 warning signs for QPR Software Oyj you should be aware of, and 1 of them is concerning.

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.

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.