Health Check: How Prudently Does Andfjord Salmon Group (OB:ANDF) Use Debt?

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, Andfjord Salmon Group AS (OB:ANDF) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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.

View our latest analysis for Andfjord Salmon Group

What Is Andfjord Salmon Group's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Andfjord Salmon Group had kr226.0m of debt, an increase on kr122.8m, over one year. But it also has kr228.0m in cash to offset that, meaning it has kr2.05m net cash.

How Strong Is Andfjord Salmon Group's Balance Sheet?

The latest balance sheet data shows that Andfjord Salmon Group had liabilities of kr274.0m due within a year, and liabilities of kr226.2m falling due after that. Offsetting these obligations, it had cash of kr228.0m as well as receivables valued at kr30.0k due within 12 months. So its liabilities total kr272.1m more than the combination of its cash and short-term receivables.

Since publicly traded Andfjord Salmon Group shares are worth a total of kr2.58b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Andfjord Salmon Group also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Andfjord Salmon Group'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.

Over 12 months, Andfjord Salmon Group reported revenue of kr28m, which is a gain of 189%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Andfjord Salmon Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Andfjord Salmon Group had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of kr775m and booked a kr72m accounting loss. Given it only has net cash of kr2.05m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Andfjord Salmon Group has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. Be aware that Andfjord Salmon Group is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.