Is SaltX Technology Holding (STO:SALT B) Using Debt In A Risky Way?

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.' 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 note that SaltX Technology Holding AB (STO:SALT B) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See 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 kr27.4m at the end of December 2020, a reduction from kr29.8m over a year. But it also has kr45.6m in cash to offset that, meaning it has kr18.3m net cash.

A Look At SaltX Technology Holding's Liabilities

Zooming in on the latest balance sheet data, we can see that SaltX Technology Holding had liabilities of kr10.2m due within 12 months and liabilities of kr30.0m due beyond that. Offsetting this, it had kr45.6m in cash and kr2.02m in receivables that were due within 12 months. So it can boast kr7.49m more liquid assets than total liabilities.

Having regard to SaltX Technology Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the kr434.4m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, SaltX Technology Holding boasts net cash, so it's fair to say it does not have a heavy debt load! 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 if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, SaltX Technology Holding reported revenue of kr3.0m, which is a gain of 1,292%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

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 we do note that SaltX Technology Holding had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of kr36m and booked a kr36m accounting loss. However, it has net cash of kr18.3m, 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. However, not all investment risk resides within the balance sheet - far from it. We've identified 6 warning signs with SaltX Technology Holding (at least 3 which are concerning) , and understanding them should be part of your investment process.

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. 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.
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