Is SSH Communications Security Oyj (HEL:SSH1V) A Risky Investment?

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.' 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, SSH Communications Security Oyj (HEL:SSH1V) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for SSH Communications Security Oyj

What Is SSH Communications Security Oyj's Net Debt?

As you can see below, SSH Communications Security Oyj had €2.62m of debt at December 2022, down from €3.42m a year prior. However, it does have €5.87m in cash offsetting this, leading to net cash of €3.25m.

How Healthy Is SSH Communications Security Oyj's Balance Sheet?

According to the last reported balance sheet, SSH Communications Security Oyj had liabilities of €18.7m due within 12 months, and liabilities of €8.35m due beyond 12 months. On the other hand, it had cash of €5.87m and €8.53m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €12.7m.

Given SSH Communications Security Oyj has a market capitalization of €77.5m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, SSH Communications Security 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 ultimately the future profitability of the business will decide if SSH Communications Security 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 SSH Communications Security Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to €20m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is SSH Communications Security Oyj?

While SSH Communications Security Oyj lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €478k. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for SSH Communications Security Oyj you should know about.

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.