Does HAV Group (OB:HAV) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, HAV Group ASA (OB:HAV) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for HAV Group

How Much Debt Does HAV Group Carry?

You can click the graphic below for the historical numbers, but it shows that HAV Group had kr30.1m of debt in September 2024, down from kr31.8m, one year before. However, its balance sheet shows it holds kr148.8m in cash, so it actually has kr118.7m net cash.

How Healthy Is HAV Group's Balance Sheet?

According to the last reported balance sheet, HAV Group had liabilities of kr580.9m due within 12 months, and liabilities of kr41.9m due beyond 12 months. Offsetting these obligations, it had cash of kr148.8m as well as receivables valued at kr386.9m due within 12 months. So it has liabilities totalling kr87.1m more than its cash and near-term receivables, combined.

HAV Group has a market capitalization of kr172.8m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, HAV Group boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is HAV Group's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year HAV Group had a loss before interest and tax, and actually shrunk its revenue by 9.8%, to kr569m. We would much prefer see growth.

So How Risky Is HAV Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months HAV Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of kr81m and booked a kr78m accounting loss. But at least it has kr118.7m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for HAV Group you should be aware of, and 1 of them shouldn't be ignored.

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.