Is Finnair Oyj (HEL:FIA1S) Weighed On By Its Debt Load?

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. We note that Finnair Oyj (HEL:FIA1S) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

Check out our latest analysis for Finnair Oyj

How Much Debt Does Finnair Oyj Carry?

You can click the graphic below for the historical numbers, but it shows that Finnair Oyj had €1.30b of debt in December 2022, down from €1.43b, one year before. However, it does have €1.54b in cash offsetting this, leading to net cash of €237.1m.

How Healthy Is Finnair Oyj's Balance Sheet?

The latest balance sheet data shows that Finnair Oyj had liabilities of €1.35b due within a year, and liabilities of €2.37b falling due after that. Offsetting these obligations, it had cash of €1.54b as well as receivables valued at €202.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.98b.

This deficit casts a shadow over the €674.3m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Finnair Oyj would probably need a major re-capitalization if its creditors were to demand repayment. Given that Finnair Oyj has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. 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 Finnair 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.

In the last year Finnair Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 181%, to €2.4b. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Finnair Oyj?

While Finnair Oyj lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €171m. 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. One positive was the revenue growth of 181% over the last year. But the stock still looks risky to us. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Finnair Oyj's profit, revenue, and operating cashflow have changed over the last few years.

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.

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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.