Is Bonheur (OB:BONHR) Using Too Much 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Bonheur ASA (OB:BONHR) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Bonheur

What Is Bonheur's Debt?

The chart below, which you can click on for greater detail, shows that Bonheur had kr10.2b in debt in March 2021; about the same as the year before. However, it also had kr4.21b in cash, and so its net debt is kr5.98b.

How Healthy Is Bonheur's Balance Sheet?

We can see from the most recent balance sheet that Bonheur had liabilities of kr3.64b falling due within a year, and liabilities of kr10.7b due beyond that. Offsetting these obligations, it had cash of kr4.21b as well as receivables valued at kr1.84b due within 12 months. So its liabilities total kr8.31b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of kr9.53b, so it does suggest shareholders should keep an eye on Bonheur's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Bonheur'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, Bonheur made a loss at the EBIT level, and saw its revenue drop to kr5.5b, which is a fall of 32%. To be frank that doesn't bode well.

Caveat Emptor

While Bonheur's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at kr396m. 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. However, it doesn't help that it burned through kr2.5b of cash over the last year. So suffice it to say we consider the stock very risky. 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. Case in point: We've spotted 1 warning sign for Bonheur you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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