Here's Why Ice Fish Farm (OB:IFISH) Can Afford Some 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 note that Ice Fish Farm AS (OB:IFISH) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Ice Fish Farm

How Much Debt Does Ice Fish Farm Carry?

As you can see below, Ice Fish Farm had kr1.03b of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have kr188.7m in cash offsetting this, leading to net debt of about kr844.7m.

A Look At Ice Fish Farm's Liabilities

The latest balance sheet data shows that Ice Fish Farm had liabilities of kr261.2m due within a year, and liabilities of kr1.16b falling due after that. On the other hand, it had cash of kr188.7m and kr91.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr1.14b.

While this might seem like a lot, it is not so bad since Ice Fish Farm has a market capitalization of kr2.81b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Ice Fish Farm 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.

Over 12 months, Ice Fish Farm reported revenue of kr436m, which is a gain of 10.0%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Ice Fish Farm had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at kr55m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled kr509m in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Ice Fish Farm has 3 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.