Health Check: How Prudently Does Finnair Oyj (HEL:FIA1S) Use Debt?

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.' 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, Finnair Oyj (HEL:FIA1S) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Finnair Oyj

How Much Debt Does Finnair Oyj Carry?

As you can see below, Finnair Oyj had €1.33b of debt at June 2022, down from €1.44b a year prior. But it also has €1.64b in cash to offset that, meaning it has €315.4m net cash.

A Look At Finnair Oyj's Liabilities

Zooming in on the latest balance sheet data, we can see that Finnair Oyj had liabilities of €1.79b due within 12 months and liabilities of €2.12b due beyond that. On the other hand, it had cash of €1.64b and €129.2m worth of receivables due within a year. So it has liabilities totalling €2.14b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the €480.9m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Finnair Oyj would likely require a major re-capitalisation if it had to pay its creditors today. Finnair Oyj boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. 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 Finnair 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.

In the last year Finnair Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 268%, to €1.6b. That's virtually the hole-in-one of revenue growth!

So How Risky Is Finnair Oyj?

Although Finnair Oyj had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of €277m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The saving grace for the stock is the strong revenue growth of 268% over the last twelve months. But we genuinely do think the balance sheet is a risky. For riskier companies like Finnair Oyj I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.