SaltX Technology Holding (STO:SALT B) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that SaltX Technology Holding AB (STO:SALT B) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at 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 kr27.5m at the end of December 2021, a reduction from kr29.8m over a year. However, it does have kr51.2m in cash offsetting this, leading to net cash of kr23.7m.

How Healthy Is SaltX Technology Holding's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SaltX Technology Holding had liabilities of kr11.7m due within 12 months and liabilities of kr27.2m due beyond that. Offsetting these obligations, it had cash of kr51.2m as well as receivables valued at kr2.70m due within 12 months. So it actually has kr15.0m more liquid assets than total liabilities.

This surplus suggests that SaltX Technology Holding has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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. 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 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 kr18m, which is a gain of 520%, 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 kr51m and booked a kr38m accounting loss. However, it has net cash of kr23.7m, so it has a bit of time before it will need more capital. Importantly, SaltX Technology Holding's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for SaltX Technology Holding (of which 2 shouldn't be ignored!) you should know about.

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.