Is FlexQube (STO:FLEXQ) Using Debt In A Risky Way?

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. Importantly, FlexQube AB (publ) (STO:FLEXQ) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 FlexQube

How Much Debt Does FlexQube Carry?

As you can see below, at the end of September 2021, FlexQube had kr14.5m of debt, up from kr2.50m a year ago. Click the image for more detail. But on the other hand it also has kr14.7m in cash, leading to a kr167.3k net cash position.

How Strong Is FlexQube's Balance Sheet?

The latest balance sheet data shows that FlexQube had liabilities of kr51.9m due within a year, and liabilities of kr9.45m falling due after that. Offsetting these obligations, it had cash of kr14.7m as well as receivables valued at kr18.1m due within 12 months. So its liabilities total kr28.5m more than the combination of its cash and short-term receivables.

Given FlexQube has a market capitalization of kr639.3m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, FlexQube boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine FlexQube's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year FlexQube wasn't profitable at an EBIT level, but managed to grow its revenue by 9.2%, to kr90m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is FlexQube?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year FlexQube had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through kr11m of cash and made a loss of kr23m. With only kr167.3k on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for FlexQube (2 make us uncomfortable!) that you should be aware of before investing here.

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.