Is WithSecure Oyj (HEL:WITH) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, WithSecure Oyj (HEL:WITH) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 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. 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.

Check out our latest analysis for WithSecure Oyj

What Is WithSecure Oyj's Net Debt?

The chart below, which you can click on for greater detail, shows that WithSecure Oyj had €3.68m in debt in September 2023; about the same as the year before. But it also has €36.0m in cash to offset that, meaning it has €32.3m net cash.

How Healthy Is WithSecure Oyj's Balance Sheet?

We can see from the most recent balance sheet that WithSecure Oyj had liabilities of €64.5m falling due within a year, and liabilities of €31.5m due beyond that. On the other hand, it had cash of €36.0m and €38.8m worth of receivables due within a year. So its liabilities total €21.1m more than the combination of its cash and short-term receivables.

Given WithSecure Oyj has a market capitalization of €183.1m, 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. While it does have liabilities worth noting, WithSecure Oyj also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if WithSecure Oyj can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, WithSecure Oyj reported revenue of €141m, which is a gain of 6.3%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is WithSecure 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 WithSecure Oyj had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €33m and booked a €36m accounting loss. With only €32.3m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. 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 WithSecure Oyj you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.