Does Aspocomp Group Oyj (HEL:ACG1V) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Aspocomp Group Oyj (HEL:ACG1V) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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 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. 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 Aspocomp Group Oyj

What Is Aspocomp Group Oyj's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Aspocomp Group Oyj had €4.99m of debt in June 2021, down from €6.08m, one year before. On the flip side, it has €1.97m in cash leading to net debt of about €3.03m.

How Healthy Is Aspocomp Group Oyj's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Aspocomp Group Oyj had liabilities of €5.80m due within 12 months and liabilities of €4.00m due beyond that. Offsetting this, it had €1.97m in cash and €6.97m in receivables that were due within 12 months. So its liabilities total €866.0k more than the combination of its cash and short-term receivables.

Of course, Aspocomp Group Oyj has a market capitalization of €37.6m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 Aspocomp 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.

Over 12 months, Aspocomp Group Oyj made a loss at the EBIT level, and saw its revenue drop to €25m, which is a fall of 12%. That's not what we would hope to see.

Caveat Emptor

Not only did Aspocomp Group Oyj's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost €21k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of €863k and the profit of €93k. So one might argue that there's still a chance it can get things on the right track. 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. We've identified 2 warning signs with Aspocomp Group Oyj , and understanding them should be part of your investment process.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.