Health Check: How Prudently Does SaltX Technology Holding (STO:SALT B) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, SaltX Technology Holding AB (publ) (STO:SALT B) does carry debt. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for SaltX Technology Holding

How Much Debt Does SaltX Technology Holding Carry?

As you can see below, SaltX Technology Holding had kr25.7m of debt at September 2023, down from kr26.8m a year prior. However, its balance sheet shows it holds kr56.1m in cash, so it actually has kr30.4m net cash.

How Healthy Is SaltX Technology Holding's Balance Sheet?

According to the last reported balance sheet, SaltX Technology Holding had liabilities of kr53.3m due within 12 months, and liabilities of kr27.5m due beyond 12 months. On the other hand, it had cash of kr56.1m and kr577.0k worth of receivables due within a year. So it has liabilities totalling kr24.2m more than its cash and near-term receivables, combined.

Since publicly traded SaltX Technology Holding shares are worth a total of kr399.1m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, SaltX Technology Holding also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is SaltX Technology Holding's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, SaltX Technology Holding reported revenue of kr71m, which is a gain of 2,598%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is SaltX Technology Holding?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months SaltX Technology Holding lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of kr75m and booked a kr51m accounting loss. However, it has net cash of kr30.4m, so it has a bit of time before it will need more capital. The good news for shareholders is that SaltX Technology Holding has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. We've identified 4 warning signs with SaltX Technology Holding (at least 2 which can't be ignored) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.