ITAB Shop Concept (STO:ITAB) Seems To Use Debt Rather Sparingly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that ITAB Shop Concept AB (publ) (STO:ITAB) does use debt in its business. But is this debt a concern to shareholders?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

View our latest analysis for ITAB Shop Concept

What Is ITAB Shop Concept's Debt?

As you can see below, ITAB Shop Concept had kr700.0m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds kr1.51b in cash, so it actually has kr813.0m net cash.

A Look At ITAB Shop Concept's Liabilities

Zooming in on the latest balance sheet data, we can see that ITAB Shop Concept had liabilities of kr1.73b due within 12 months and liabilities of kr1.09b due beyond that. Offsetting this, it had kr1.51b in cash and kr1.22b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr84.0m.

This state of affairs indicates that ITAB Shop Concept's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the kr5.42b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, ITAB Shop Concept also has more cash than debt, so we're pretty confident it can manage its debt safely.

While ITAB Shop Concept doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ITAB Shop Concept'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. ITAB Shop Concept may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, ITAB Shop Concept actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about ITAB Shop Concept's liabilities, but we can be reassured by the fact it has has net cash of kr813.0m. The cherry on top was that in converted 120% of that EBIT to free cash flow, bringing in kr448m. So is ITAB Shop Concept's debt a risk? It doesn't seem so to us. 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 be aware of the 1 warning sign we've spotted with ITAB Shop Concept .

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.