OXE Marine (STO:OXE) Has Debt But No Earnings; Should You Worry?

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

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for OXE Marine

What Is OXE Marine's Net Debt?

As you can see below, OXE Marine had kr239.1m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have kr16.1m in cash offsetting this, leading to net debt of about kr223.0m.

How Strong Is OXE Marine's Balance Sheet?

We can see from the most recent balance sheet that OXE Marine had liabilities of kr80.4m falling due within a year, and liabilities of kr251.7m due beyond that. On the other hand, it had cash of kr16.1m and kr34.7m worth of receivables due within a year. So its liabilities total kr281.3m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of kr296.2m, so it does suggest shareholders should keep an eye on OXE Marine's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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 OXE Marine'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.

In the last year OXE Marine had a loss before interest and tax, and actually shrunk its revenue by 3.9%, to kr151m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months OXE Marine produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable kr128m at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled kr52m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for OXE Marine (2 don't sit too well with us!) 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.