Qt Group Oyj (HEL:QTCOM) Has A Rock Solid Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Qt Group Oyj (HEL:QTCOM) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

View our latest analysis for Qt Group Oyj

How Much Debt Does Qt Group Oyj Carry?

The image below, which you can click on for greater detail, shows that Qt Group Oyj had debt of €4.32m at the end of December 2024, a reduction from €16.3m over a year. But on the other hand it also has €64.9m in cash, leading to a €60.5m net cash position.

A Look At Qt Group Oyj's Liabilities

According to the last reported balance sheet, Qt Group Oyj had liabilities of €41.1m due within 12 months, and liabilities of €19.2m due beyond 12 months. On the other hand, it had cash of €64.9m and €80.3m worth of receivables due within a year. So it actually has €84.9m more liquid assets than total liabilities.

This surplus suggests that Qt Group Oyj has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Qt Group Oyj boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Qt Group Oyj has boosted its EBIT by 33%, thus reducing the spectre of future debt repayments. 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 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 company can only pay off debt with cold hard cash, not accounting profits. Qt Group Oyj may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Qt Group Oyj produced sturdy free cash flow equating to 59% of its EBIT, about what we'd expect. 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 €60.5m in net cash and a decent-looking balance sheet. And we liked the look of last year's 33% year-on-year EBIT growth. So is Qt Group Oyj's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in Qt Group Oyj would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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.