Is WithSecure Oyj (HEL:WITH) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, WithSecure Oyj (HEL:WITH) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for WithSecure Oyj

How Much Debt Does WithSecure Oyj Carry?

You can click the graphic below for the historical numbers, but it shows that WithSecure Oyj had €8.40m of debt in December 2022, down from €19.0m, one year before. But it also has €69.1m in cash to offset that, meaning it has €60.7m net cash.

How Strong Is WithSecure Oyj's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that WithSecure Oyj had liabilities of €73.3m due within 12 months and liabilities of €32.5m due beyond that. On the other hand, it had cash of €69.1m and €36.2m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that WithSecure Oyj's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €286.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, WithSecure Oyj boasts net cash, so it's fair to say it does not have a heavy debt load! 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, WithSecure Oyj reported revenue of €135m, which is a gain of 3.6%, 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?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year WithSecure Oyj had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €25m of cash and made a loss of €38m. With only €60.7m 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. 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 example - WithSecure Oyj has 1 warning sign we think you should be aware of.

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.