Does Qt Group Oyj (HEL:QTCOM) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Qt Group Oyj (HEL:QTCOM) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Qt Group Oyj

What Is Qt Group Oyj's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Qt Group Oyj had €3.95m of debt in June 2024, down from €29.1m, one year before. However, it does have €40.4m in cash offsetting this, leading to net cash of €36.4m.

How Healthy Is Qt Group Oyj's Balance Sheet?

We can see from the most recent balance sheet that Qt Group Oyj had liabilities of €51.4m falling due within a year, and liabilities of €19.5m due beyond that. Offsetting these obligations, it had cash of €40.4m as well as receivables valued at €76.0m due within 12 months. So it actually has €45.4m more liquid assets than total liabilities.

Having regard to Qt Group Oyj's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the €2.29b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Qt Group Oyj has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, Qt Group Oyj grew its EBIT by 42% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Qt Group 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Qt Group 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 most recent three years, Qt Group Oyj recorded free cash flow worth 53% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Qt Group Oyj has €36.4m in net cash and a decent-looking balance sheet. And we liked the look of last year's 42% year-on-year EBIT growth. So we don't think Qt Group Oyj's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Qt Group Oyj that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.