Is PowerCell Sweden (STO:PCELL) A Risky Investment?

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

When Is Debt A Problem?

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. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for PowerCell Sweden

How Much Debt Does PowerCell Sweden Carry?

As you can see below, PowerCell Sweden had kr30.6m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has kr195.3m in cash to offset that, meaning it has kr164.7m net cash.

A Look At PowerCell Sweden's Liabilities

We can see from the most recent balance sheet that PowerCell Sweden had liabilities of kr174.9m falling due within a year, and liabilities of kr54.4m due beyond that. On the other hand, it had cash of kr195.3m and kr119.8m worth of receivables due within a year. So it actually has kr85.7m more liquid assets than total liabilities.

This short term liquidity is a sign that PowerCell Sweden could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, PowerCell Sweden boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine PowerCell Sweden'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.

Over 12 months, PowerCell Sweden reported revenue of kr270m, which is a gain of 43%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is PowerCell Sweden?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year PowerCell Sweden had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of kr62m and booked a kr63m accounting loss. With only kr164.7m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, PowerCell Sweden may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for PowerCell Sweden that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.