Is Napatech (OB:NAPA) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Napatech A/S (OB:NAPA) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Napatech

How Much Debt Does Napatech Carry?

The chart below, which you can click on for greater detail, shows that Napatech had kr.43.2m in debt in September 2024; about the same as the year before. But it also has kr.102.9m in cash to offset that, meaning it has kr.59.6m net cash.

How Healthy Is Napatech's Balance Sheet?

According to the last reported balance sheet, Napatech had liabilities of kr.70.5m due within 12 months, and liabilities of kr.22.7m due beyond 12 months. Offsetting these obligations, it had cash of kr.102.9m as well as receivables valued at kr.43.0m due within 12 months. So it can boast kr.52.7m more liquid assets than total liabilities.

This surplus suggests that Napatech has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Napatech boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Napatech's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Napatech had a loss before interest and tax, and actually shrunk its revenue by 14%, to kr.137m. That's not what we would hope to see.

So How Risky Is Napatech?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Napatech had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through kr.78m of cash and made a loss of kr.89m. But at least it has kr.59.6m on the balance sheet to spend on growth, near-term. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that Napatech is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.