Is SolTech Energy Sweden (STO:SOLT) 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that SolTech Energy Sweden AB (publ) (STO:SOLT) does use debt in its business. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for SolTech Energy Sweden

What Is SolTech Energy Sweden's Debt?

As you can see below, SolTech Energy Sweden had kr95.4m of debt at March 2022, down from kr925.4m a year prior. But it also has kr255.9m in cash to offset that, meaning it has kr160.5m net cash.

A Look At SolTech Energy Sweden's Liabilities

The latest balance sheet data shows that SolTech Energy Sweden had liabilities of kr368.3m due within a year, and liabilities of kr219.3m falling due after that. On the other hand, it had cash of kr255.9m and kr271.2m worth of receivables due within a year. So it has liabilities totalling kr60.4m more than its cash and near-term receivables, combined.

Since publicly traded SolTech Energy Sweden shares are worth a total of kr2.42b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, SolTech Energy Sweden 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 you can't view debt in total isolation; since SolTech Energy Sweden 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.

In the last year SolTech Energy Sweden wasn't profitable at an EBIT level, but managed to grow its revenue by 105%, to kr1.1b. So there's no doubt that shareholders are cheering for growth

So How Risky Is SolTech Energy Sweden?

Although SolTech Energy Sweden had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of kr55m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. One positive is that SolTech Energy Sweden is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for SolTech Energy Sweden (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.

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.