Is Xplora Technologies (OB:XPLRA) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Xplora Technologies AS (OB:XPLRA) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Xplora Technologies

What Is Xplora Technologies's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 Xplora Technologies had debt of kr103.2m, up from kr73.3m in one year. But it also has kr119.6m in cash to offset that, meaning it has kr16.4m net cash.

How Healthy Is Xplora Technologies' Balance Sheet?

We can see from the most recent balance sheet that Xplora Technologies had liabilities of kr207.1m falling due within a year, and liabilities of kr12.5m due beyond that. Offsetting these obligations, it had cash of kr119.6m as well as receivables valued at kr108.9m due within 12 months. So it can boast kr8.94m more liquid assets than total liabilities.

This state of affairs indicates that Xplora Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the kr525.5m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Xplora Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Xplora Technologies will need earnings to service that debt. 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.

In the last year Xplora Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 36%, to kr712m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Xplora Technologies?

Although Xplora Technologies had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of kr17m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We think its revenue growth of 36% is a good sign. We'd see further strong growth as an optimistic indication. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for Xplora Technologies you should be aware of, and 1 of them shouldn't be ignored.

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.

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