We Think Hifab Group AB (publ.) (STO:HIFA B) Has A Fair Chunk Of Debt

Warren Buffett famously said, '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. As with many other companies Hifab Group AB (publ.) (STO:HIFA B) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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.

View our latest analysis for Hifab Group AB (publ.)

How Much Debt Does Hifab Group AB (publ.) Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Hifab Group AB (publ.) had kr14.2m of debt, an increase on kr1.00m, over one year. However, because it has a cash reserve of kr300.0k, its net debt is less, at about kr13.9m.

How Strong Is Hifab Group AB (publ.)'s Balance Sheet?

We can see from the most recent balance sheet that Hifab Group AB (publ.) had liabilities of kr93.4m falling due within a year, and liabilities of kr13.3m due beyond that. Offsetting these obligations, it had cash of kr300.0k as well as receivables valued at kr102.9m due within 12 months. So its liabilities total kr3.50m more than the combination of its cash and short-term receivables.

Given Hifab Group AB (publ.) has a market capitalization of kr152.1m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Hifab Group AB (publ.)'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 Hifab Group AB (publ.) had a loss before interest and tax, and actually shrunk its revenue by 9.3%, to kr327m. That's not what we would hope to see.

Caveat Emptor

Importantly, Hifab Group AB (publ.) had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping kr16m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled kr16m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Hifab Group AB (publ.) (2 are concerning!) 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.

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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.