KABE Group AB (publ.) (STO:KABE B) Has A Rock Solid 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.' 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. Importantly, KABE Group AB (publ.) (STO:KABE B) does carry debt. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for KABE Group AB (publ.)

What Is KABE Group AB (publ.)'s Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2023 KABE Group AB (publ.) had kr88.0m of debt, an increase on kr76.0m, over one year. But it also has kr406.0m in cash to offset that, meaning it has kr318.0m net cash.

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

We can see from the most recent balance sheet that KABE Group AB (publ.) had liabilities of kr926.0m falling due within a year, and liabilities of kr133.0m due beyond that. Offsetting this, it had kr406.0m in cash and kr620.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr33.0m.

Having regard to KABE Group AB (publ.)'s size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the kr2.23b company is struggling for cash, we still think it's worth monitoring its balance sheet. 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!

The good news is that KABE Group AB (publ.) has increased its EBIT by 4.9% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is KABE Group AB (publ.)'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While KABE Group AB (publ.) has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, KABE Group AB (publ.) generated free cash flow amounting to a very robust 94% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about KABE Group AB (publ.)'s liabilities, but we can be reassured by the fact it has has net cash of kr318.0m. And it impressed us with free cash flow of -kr5.0m, being 94% of its EBIT. So is KABE Group AB (publ.)'s debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for KABE Group AB (publ.) (1 doesn't sit too well with us) you should be aware of.

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.