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.' 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 (publ) (STO:SALT B) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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

What Is SaltX Technology Holding's Net Debt?

As you can see below, SaltX Technology Holding had kr27.0m of debt, at March 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has kr59.5m in cash to offset that, meaning it has kr32.5m 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 kr17.5m due within 12 months and liabilities of kr28.6m due beyond that. Offsetting these obligations, it had cash of kr59.5m as well as receivables valued at kr1.25m due within 12 months. So it actually has kr14.6m 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. 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.

In the last year SaltX Technology Holding had a loss before interest and tax, and actually shrunk its revenue by 37%, to kr8.7m. That makes us nervous, to say the least.

So How Risky Is SaltX Technology Holding?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year SaltX Technology Holding had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through kr51m of cash and made a loss of kr56m. However, it has net cash of kr32.5m, so it has a bit of time before it will need more capital. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example SaltX Technology Holding has 3 warning signs (and 1 which is concerning) we think you should know about.

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.

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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.