Is ByggPartner Gruppen (STO:BYGGP) Using Debt Sensibly?

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. We note that ByggPartner Gruppen AB (publ) (STO:BYGGP) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for ByggPartner Gruppen

How Much Debt Does ByggPartner Gruppen Carry?

The image below, which you can click on for greater detail, shows that at December 2022 ByggPartner Gruppen had debt of kr233.1m, up from none in one year. On the flip side, it has kr86.3m in cash leading to net debt of about kr146.8m.

How Healthy Is ByggPartner Gruppen's Balance Sheet?

According to the last reported balance sheet, ByggPartner Gruppen had liabilities of kr1.25b due within 12 months, and liabilities of kr293.3m due beyond 12 months. On the other hand, it had cash of kr86.3m and kr900.2m worth of receivables due within a year. So its liabilities total kr555.4m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the kr357.4m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, ByggPartner Gruppen would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since ByggPartner Gruppen 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.

In the last year ByggPartner Gruppen wasn't profitable at an EBIT level, but managed to grow its revenue by 74%, to kr4.0b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though ByggPartner Gruppen managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping kr94m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of kr77m over the last twelve months. That means it's on the risky side of things. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 5 warning signs we've spotted with ByggPartner Gruppen (including 2 which are a bit concerning) .

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. 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.