Is Tekna Holding (OB:TEKNA) Using Too Much Debt?

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Tekna Holding ASA (OB:TEKNA) makes use of debt. But should shareholders be worried about its use of debt?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Tekna Holding Carry?

As you can see below, at the end of March 2025, Tekna Holding had CA$32.2m of debt, up from CA$30.8m a year ago. Click the image for more detail. However, because it has a cash reserve of CA$7.06m, its net debt is less, at about CA$25.1m.

How Healthy Is Tekna Holding's Balance Sheet?

The latest balance sheet data shows that Tekna Holding had liabilities of CA$9.77m due within a year, and liabilities of CA$35.0m falling due after that. On the other hand, it had cash of CA$7.06m and CA$9.24m worth of receivables due within a year. So its liabilities total CA$28.5m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Tekna Holding is worth CA$93.6m, and thus could probably raise enough capital to shore up 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. There's no doubt that we learn most about debt from the balance sheet. But it is Tekna Holding'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.

View our latest analysis for Tekna Holding

Over 12 months, Tekna Holding made a loss at the EBIT level, and saw its revenue drop to CA$37m, which is a fall of 8.1%. That's not what we would hope to see.

Caveat Emptor

Importantly, Tekna Holding had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CA$7.9m at the EBIT level. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CA$2.5m of cash over the last year. So to be blunt we think it is risky. 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, we've discovered 4 warning signs for Tekna Holding (2 are a bit concerning!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.