Here's Why SaltX Technology Holding (STO:SALT B) Can Manage Its Debt Despite Losing Money

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies SaltX Technology Holding AB (STO:SALT B) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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?

The image below, which you can click on for greater detail, shows that SaltX Technology Holding had debt of kr26.8m at the end of June 2021, a reduction from kr28.0m over a year. But on the other hand it also has kr78.9m in cash, leading to a kr52.1m net cash position.

A Look At SaltX Technology Holding's Liabilities

According to the last reported balance sheet, SaltX Technology Holding had liabilities of kr10.7m due within 12 months, and liabilities of kr28.6m due beyond 12 months. Offsetting this, it had kr78.9m in cash and kr2.63m in receivables that were due within 12 months. So it actually has kr42.2m more liquid assets than total liabilities.

This short term liquidity is a sign that SaltX Technology Holding could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that SaltX Technology Holding has more cash than debt is arguably a good indication that 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 kr11m, which is a gain of 908%, 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?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months SaltX Technology Holding lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through kr41m of cash and made a loss of kr36m. But at least it has kr52.1m on the balance sheet to spend on growth, near-term. 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. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Case in point: We've spotted 5 warning signs for SaltX Technology Holding you should be aware of, and 1 of them is a bit concerning.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

If you decide to trade SaltX Technology Holding, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.