Is GomSpace Group (STO:GOMX) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that GomSpace Group AB (publ) (STO:GOMX) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

What Is GomSpace Group's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 GomSpace Group had debt of kr64.0m, up from kr57.6m in one year. However, its balance sheet shows it holds kr82.5m in cash, so it actually has kr18.5m net cash.

A Look At GomSpace Group's Liabilities

According to the last reported balance sheet, GomSpace Group had liabilities of kr194.9m due within 12 months, and liabilities of kr108.5m due beyond 12 months. On the other hand, it had cash of kr82.5m and kr56.6m worth of receivables due within a year. So it has liabilities totalling kr164.4m more than its cash and near-term receivables, combined.

Of course, GomSpace Group has a market capitalization of kr972.0m, so these liabilities are probably manageable. 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, GomSpace Group 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 GomSpace Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

View our latest analysis for GomSpace Group

In the last year GomSpace Group wasn't profitable at an EBIT level, but managed to grow its revenue by 8.1%, to kr257m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is GomSpace Group?

Although GomSpace Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of kr21m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example GomSpace Group has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.