Is Swedish Stirling (STO:STRLNG) A Risky Investment?

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 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 Swedish Stirling AB (publ) (STO:STRLNG) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. 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 Swedish Stirling

How Much Debt Does Swedish Stirling Carry?

As you can see below, Swedish Stirling had kr74.1m of debt at December 2021, down from kr197.0m a year prior. However, its balance sheet shows it holds kr235.5m in cash, so it actually has kr161.4m net cash.

A Look At Swedish Stirling's Liabilities

The latest balance sheet data shows that Swedish Stirling had liabilities of kr20.9m due within a year, and liabilities of kr86.3m falling due after that. Offsetting these obligations, it had cash of kr235.5m as well as receivables valued at kr3.12m due within 12 months. So it actually has kr131.3m more liquid assets than total liabilities.

This short term liquidity is a sign that Swedish Stirling could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Swedish Stirling boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. 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.

In the last year Swedish Stirling wasn't profitable at an EBIT level, but managed to grow its revenue by 26%, to kr67m. Shareholders probably have their fingers crossed that it can grow its way to profits.

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. Indeed, in that time it burnt through kr115m of cash and made a loss of kr69m. Given it only has net cash of kr161.4m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Swedish Stirling may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. 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 2 which don't sit too well with us) .

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.