Is Strip Tinning Holdings (LON:STG) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Strip Tinning Holdings plc (LON:STG) does use debt in its business. But should shareholders be worried about its use of debt?

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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 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Strip Tinning Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Strip Tinning Holdings had UK£5.18m of debt, an increase on UK£4.28m, over one year. And it doesn't have much cash, so its net debt is about the same.

A Look At Strip Tinning Holdings' Liabilities

We can see from the most recent balance sheet that Strip Tinning Holdings had liabilities of UK£2.39m falling due within a year, and liabilities of UK£7.13m due beyond that. Offsetting these obligations, it had cash of UK£84.0k as well as receivables valued at UK£2.73m due within 12 months. So it has liabilities totalling UK£6.71m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of UK£4.92m, we think shareholders really should watch Strip Tinning Holdings's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Strip Tinning Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Strip Tinning Holdings

In the last year Strip Tinning Holdings had a loss before interest and tax, and actually shrunk its revenue by 12%, to UK£8.8m. That's not what we would hope to see.

Caveat Emptor

Not only did Strip Tinning Holdings's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping UK£3.0m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of UK£1.9m over the last twelve months. So suffice it to say we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Strip Tinning Holdings , and understanding them should be part of your investment process.

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.