Here's Why Aspocomp Group Oyj (HEL:ACG1V) Can Afford Some Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Aspocomp Group Oyj

What Is Aspocomp Group Oyj's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Aspocomp Group Oyj had debt of €6.00m, up from €5.20m in one year. However, it also had €847.0k in cash, and so its net debt is €5.15m.

How Strong 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 €5.63m due within 12 months and liabilities of €5.48m due beyond that. Offsetting these obligations, it had cash of €847.0k as well as receivables valued at €6.19m due within 12 months. So its liabilities total €4.07m more than the combination of its cash and short-term receivables.

Of course, Aspocomp Group Oyj has a market capitalization of €21.9m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Aspocomp Group Oyj made a loss at the EBIT level, and saw its revenue drop to €26m, which is a fall of 30%. To be frank that doesn't bode well.

Caveat Emptor

While Aspocomp Group Oyj's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable €5.9m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €1.5m of cash over the last year. So in short it's a really risky stock. 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. Be aware that Aspocomp Group Oyj is showing 2 warning signs in our investment analysis , 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.