Rock star Growth Puts SaltX Technology Holding (STO:SALT B) In A Position To Use Debt

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. We can see that SaltX Technology Holding AB (STO:SALT B) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for SaltX Technology Holding

How Much Debt Does SaltX Technology Holding Carry?

As you can see below, SaltX Technology Holding had kr26.5m of debt at September 2021, down from kr27.7m a year prior. But it also has kr67.4m in cash to offset that, meaning it has kr41.0m net cash.

How Healthy Is SaltX Technology Holding's Balance Sheet?

The latest balance sheet data shows that SaltX Technology Holding had liabilities of kr12.8m due within a year, and liabilities of kr27.9m falling due after that. Offsetting these obligations, it had cash of kr67.4m as well as receivables valued at kr2.12m due within 12 months. So it can boast kr28.9m 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. Succinctly put, SaltX Technology Holding boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since SaltX Technology Holding will need earnings to service that debt. 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 kr19m, which is a gain of 1,895%, 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 in the last year SaltX Technology Holding had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of kr45m and booked a kr32m accounting loss. But at least it has kr41.0m 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. For instance, we've identified 5 warning signs for SaltX Technology Holding (2 make us uncomfortable) you should be aware of.

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.

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

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.