Is WithSecure Oyj (HEL:WITH) Weighed On By Its Debt Load?

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 WithSecure Oyj (HEL:WITH) does use debt in its business. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for WithSecure Oyj

What Is WithSecure Oyj's Net Debt?

The image below, which you can click on for greater detail, shows that WithSecure Oyj had debt of €3.59m at the end of June 2023, a reduction from €18.9m over a year. But on the other hand it also has €47.6m in cash, leading to a €44.0m net cash position.

How Strong Is WithSecure Oyj's Balance Sheet?

According to the last reported balance sheet, WithSecure Oyj had liabilities of €75.3m due within 12 months, and liabilities of €27.0m due beyond 12 months. Offsetting these obligations, it had cash of €47.6m as well as receivables valued at €40.9m due within 12 months. So it has liabilities totalling €13.8m more than its cash and near-term receivables, combined.

Of course, WithSecure Oyj has a market capitalization of €187.0m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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. There's no doubt that we learn most about debt from the balance sheet. 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.

In the last year WithSecure Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 6.5%, to €140m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is WithSecure Oyj?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months WithSecure Oyj lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €36m of cash and made a loss of €31m. With only €44.0m 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for WithSecure Oyj that you should be aware of before investing here.

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.