Does Grieg Seafood (OB:GSF) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We note that Grieg Seafood ASA (OB:GSF) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Grieg Seafood's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Grieg Seafood had kr5.42b of debt, an increase on kr3.70b, over one year. However, it does have kr203.0m in cash offsetting this, leading to net debt of about kr5.22b.

A Look At Grieg Seafood's Liabilities

Zooming in on the latest balance sheet data, we can see that Grieg Seafood had liabilities of kr3.34b due within 12 months and liabilities of kr5.86b due beyond that. Offsetting this, it had kr203.0m in cash and kr625.6m in receivables that were due within 12 months. So it has liabilities totalling kr8.37b more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of kr6.45b, we think shareholders really should watch Grieg Seafood's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. 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 Grieg Seafood'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.

Check out our latest analysis for Grieg Seafood

In the last year Grieg Seafood wasn't profitable at an EBIT level, but managed to grow its revenue by 5.3%, to kr7.4b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Grieg Seafood had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost kr577m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident 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 kr853m over the last twelve months. That means it's on the risky side of things. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Grieg Seafood (of which 1 shouldn't be ignored!) you should know about.

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.