Health Check: How Prudently Does Swedish Stirling (STO:STRLNG) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Swedish Stirling AB (publ) (STO:STRLNG) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Swedish Stirling

What Is Swedish Stirling's Net Debt?

As you can see below, at the end of September 2022, Swedish Stirling had kr78.9m of debt, up from kr72.7m a year ago. Click the image for more detail. But it also has kr101.0m in cash to offset that, meaning it has kr22.0m net cash.

A Look At Swedish Stirling's Liabilities

We can see from the most recent balance sheet that Swedish Stirling had liabilities of kr29.8m falling due within a year, and liabilities of kr91.1m due beyond that. Offsetting these obligations, it had cash of kr101.0m as well as receivables valued at kr4.72m due within 12 months. So its liabilities total kr15.2m more than the combination of its cash and short-term receivables.

Of course, Swedish Stirling has a market capitalization of kr394.2m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Swedish Stirling 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 it is future earnings, more than anything, that will determine Swedish Stirling's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Swedish Stirling made a loss at the EBIT level, and saw its revenue drop to kr32m, which is a fall of 47%. To be frank that doesn't bode well.

So How Risky Is Swedish Stirling?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Swedish Stirling lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of kr162m and booked a kr344m accounting loss. With only kr22.0m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 5 warning signs we've spotted with Swedish Stirling (including 1 which is significant) .

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.