Acuvi (STO:ACUVI) Is Carrying A Fair Bit Of Debt

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Acuvi AB (STO:ACUVI) makes use of debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Acuvi

What Is Acuvi's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2024 Acuvi had debt of kr55.2m, up from kr24.3m in one year. However, because it has a cash reserve of kr3.99m, its net debt is less, at about kr51.2m.

How Healthy Is Acuvi's Balance Sheet?

We can see from the most recent balance sheet that Acuvi had liabilities of kr91.7m falling due within a year, and liabilities of kr33.4m due beyond that. Offsetting these obligations, it had cash of kr3.99m as well as receivables valued at kr43.8m due within 12 months. So it has liabilities totalling kr77.3m more than its cash and near-term receivables, combined.

Of course, Acuvi has a market capitalization of kr542.5m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Acuvi'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.

In the last year Acuvi had a loss before interest and tax, and actually shrunk its revenue by 2.3%, to kr202m. That's not what we would hope to see.

Caveat Emptor

Importantly, Acuvi had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping kr78m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of kr83m into a profit. So we do think this stock is quite 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. For instance, we've identified 3 warning signs for Acuvi (1 is significant) 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.