Is SaltX Technology Holding (STO:SALT B) Using Too Much 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 the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for SaltX Technology Holding

What Is SaltX Technology Holding's Debt?

You can click the graphic below for the historical numbers, but it shows that SaltX Technology Holding had kr20.1m of debt in September 2024, down from kr27.0m, one year before. However, it does have kr32.3m in cash offsetting this, leading to net cash of kr12.3m.

A Look At SaltX Technology Holding's Liabilities

According to the last reported balance sheet, SaltX Technology Holding had liabilities of kr47.6m due within 12 months, and liabilities of kr1.48m due beyond 12 months. Offsetting these obligations, it had cash of kr32.3m as well as receivables valued at kr6.0k due within 12 months. So its liabilities total kr16.7m more than the combination of its cash and short-term receivables.

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 kr854.6m company is short on cash, but still worth keeping an eye on the balance sheet. 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. The balance sheet is clearly the area to focus on when you are analysing debt. 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 made a loss at the EBIT level, and saw its revenue drop to kr51m, which is a fall of 28%. To be frank that doesn't bode well.

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. Indeed, in that time it burnt through kr96m of cash and made a loss of kr56m. With only kr12.3m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Case in point: We've spotted 4 warning signs for SaltX Technology Holding you should be aware of, and 2 of them shouldn't be ignored.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.