Is Komplett (OB:KOMPL) A Risky Investment?

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.' 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 note that Komplett ASA (OB:KOMPL) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Komplett

What Is Komplett's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Komplett had debt of kr1.10b, up from kr816.0m in one year. However, it also had kr256.0m in cash, and so its net debt is kr848.0m.

How Strong Is Komplett's Balance Sheet?

The latest balance sheet data shows that Komplett had liabilities of kr2.75b due within a year, and liabilities of kr1.74b falling due after that. On the other hand, it had cash of kr256.0m and kr820.0m worth of receivables due within a year. So it has liabilities totalling kr3.41b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the kr1.52b 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'd watch its balance sheet closely, without a doubt. After all, Komplett would likely require a major re-capitalisation if it had to pay its creditors today. 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 Komplett 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, Komplett made a loss at the EBIT level, and saw its revenue drop to kr15b, which is a fall of 4.1%. That's not what we would hope to see.

Caveat Emptor

Importantly, Komplett had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at kr57m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of kr1.2b didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Komplett insider transactions.

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.