Does SECITS Holding (STO:SECI) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 SECITS Holding AB (publ) (STO:SECI) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for SECITS Holding

What Is SECITS Holding's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 SECITS Holding had kr37.4m of debt, an increase on kr23.2m, over one year. And it doesn't have much cash, so its net debt is about the same.

A Look At SECITS Holding's Liabilities

According to the last reported balance sheet, SECITS Holding had liabilities of kr79.1m due within 12 months, and liabilities of kr53.9m due beyond 12 months. On the other hand, it had cash of kr369.0k and kr54.6m worth of receivables due within a year. So its liabilities total kr78.1m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the kr45.2m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, SECITS Holding would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since SECITS Holding will need earnings to service that debt. 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 SECITS Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 68%, to kr123m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though SECITS Holding managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping kr30m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of kr1.5m over the last twelve months. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example SECITS Holding has 5 warning signs (and 4 which are concerning) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.