Is Saule Technologies (WSE:SLT) A Risky Investment?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Saule Technologies S.A. (WSE:SLT) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for Saule Technologies

What Is Saule Technologies's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 Saule Technologies had zł50.3m of debt, an increase on zł24.0m, over one year. However, it also had zł2.89m in cash, and so its net debt is zł47.4m.

How Healthy Is Saule Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Saule Technologies had liabilities of zł64.8m due within 12 months and liabilities of zł72.6m due beyond that. Offsetting these obligations, it had cash of zł2.89m as well as receivables valued at zł17.9m due within 12 months. So its liabilities total zł116.6m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of zł158.3m, so it does suggest shareholders should keep an eye on Saule Technologies' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Saule Technologies's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Saule Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 13%, to zł1.3m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Saule Technologies produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable zł23m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 zł21m of cash over the last year. So suffice it to say we consider the stock very risky. 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. To that end, you should learn about the 5 warning signs we've spotted with Saule Technologies (including 3 which make us uncomfortable) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.