SolTech Energy Sweden (STO:SOLT) Has Debt But No Earnings; Should You Worry?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, SolTech Energy Sweden AB (publ) (STO:SOLT) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for SolTech Energy Sweden

How Much Debt Does SolTech Energy Sweden Carry?

The chart below, which you can click on for greater detail, shows that SolTech Energy Sweden had kr161.6m in debt in September 2023; about the same as the year before. But on the other hand it also has kr162.4m in cash, leading to a kr791.0k net cash position.

A Look At SolTech Energy Sweden's Liabilities

According to the last reported balance sheet, SolTech Energy Sweden had liabilities of kr980.5m due within 12 months, and liabilities of kr542.7m due beyond 12 months. Offsetting these obligations, it had cash of kr162.4m as well as receivables valued at kr662.2m due within 12 months. So its liabilities total kr698.6m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of kr1.06b, so it does suggest shareholders should keep an eye on SolTech Energy Sweden's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, SolTech Energy Sweden 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 SolTech Energy Sweden 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.

In the last year SolTech Energy Sweden wasn't profitable at an EBIT level, but managed to grow its revenue by 97%, to kr2.9b. With any luck the company will be able to grow its way to profitability.

So How Risky Is SolTech Energy Sweden?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months SolTech Energy Sweden lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through kr211m of cash and made a loss of kr149m. With only kr791.0k on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, SolTech Energy Sweden may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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 3 warning signs for SolTech Energy Sweden (2 don't sit too well with us!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.