Is Aqua Bio Technology (OB:ABTEC) A Risky Investment?

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.' 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 can see that Aqua Bio Technology ASA (OB:ABTEC) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Aqua Bio Technology Carry?

As you can see below, at the end of June 2025, Aqua Bio Technology had kr99.5m of debt, up from kr64.8m a year ago. Click the image for more detail. However, it also had kr22.6m in cash, and so its net debt is kr77.0m.

How Strong Is Aqua Bio Technology's Balance Sheet?

The latest balance sheet data shows that Aqua Bio Technology had liabilities of kr105.4m due within a year, and liabilities of kr86.9m falling due after that. On the other hand, it had cash of kr22.6m and kr3.29m worth of receivables due within a year. So its liabilities total kr166.4m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the kr65.2m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Aqua Bio Technology would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Aqua Bio Technology will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for Aqua Bio Technology

In the last year Aqua Bio Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 42%, to kr103m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, Aqua Bio Technology still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping kr122m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through kr10m in the last year. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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. For example - Aqua Bio Technology 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.