KABE Group AB (publ.) (STO:KABE B) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies KABE Group AB (publ.) (STO:KABE B) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for KABE Group AB (publ.)

How Much Debt Does KABE Group AB (publ.) Carry?

You can click the graphic below for the historical numbers, but it shows that KABE Group AB (publ.) had kr134.0m of debt in March 2021, down from kr191.0m, one year before. However, its balance sheet shows it holds kr334.0m in cash, so it actually has kr200.0m net cash.

How Healthy Is KABE Group AB (publ.)'s Balance Sheet?

The latest balance sheet data shows that KABE Group AB (publ.) had liabilities of kr769.0m due within a year, and liabilities of kr218.0m falling due after that. Offsetting this, it had kr334.0m in cash and kr610.0m in receivables that were due within 12 months. So its liabilities total kr43.0m more than the combination of its cash and short-term receivables.

Since publicly traded KABE Group AB (publ.) shares are worth a total of kr1.90b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, KABE Group AB (publ.) boasts net cash, so it's fair to say it does not have a heavy debt load!

Another good sign is that KABE Group AB (publ.) has been able to increase its EBIT by 24% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since KABE Group AB (publ.) 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. KABE Group AB (publ.) may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, KABE Group AB (publ.) generated free cash flow amounting to a very robust 80% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that KABE Group AB (publ.) has kr200.0m in net cash. The cherry on top was that in converted 80% of that EBIT to free cash flow, bringing in kr298m. So we don't think KABE Group AB (publ.)'s use of debt is risky. 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. For example, we've discovered 2 warning signs for KABE Group AB (publ.) (1 is a bit concerning!) that you should be aware of before investing here.

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. 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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