Does Aega (OB:AEGA) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Aega ASA (OB:AEGA) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Aega

What Is Aega's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Aega had €2.90m of debt in December 2020, down from €3.30m, one year before. However, its balance sheet shows it holds €3.08m in cash, so it actually has €177.4k net cash.

A Look At Aega's Liabilities

We can see from the most recent balance sheet that Aega had liabilities of €490.8k falling due within a year, and liabilities of €3.41m due beyond that. On the other hand, it had cash of €3.08m and €1.26m worth of receivables due within a year. So it can boast €435.0k more liquid assets than total liabilities.

This short term liquidity is a sign that Aega could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Aega 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 it is Aega'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.

Over 12 months, Aega reported revenue of €691k, which is a gain of 982%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Aega?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Aega lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through €755k of cash and made a loss of €135k. While this does make the company a bit risky, it's important to remember it has net cash of €177.4k. That means it could keep spending at its current rate for more than two years. Importantly, Aega's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Aega is showing 3 warning signs in our investment analysis , and 1 of those is potentially serious...

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. 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.
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