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

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. As with many other companies SECITS Holding AB (publ) (STO:SECI) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

Check out our latest analysis for SECITS Holding

How Much Debt Does SECITS Holding Carry?

You can click the graphic below for the historical numbers, but it shows that SECITS Holding had kr24.6m of debt in December 2023, down from kr37.4m, one year before. However, because it has a cash reserve of kr11.7m, its net debt is less, at about kr12.9m.

A Look At SECITS Holding's Liabilities

According to the last reported balance sheet, SECITS Holding had liabilities of kr55.3m due within 12 months, and liabilities of kr55.1m due beyond 12 months. Offsetting these obligations, it had cash of kr11.7m as well as receivables valued at kr30.0m due within 12 months. So its liabilities total kr68.7m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the kr31.3m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, SECITS Holding would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since SECITS Holding will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, SECITS Holding made a loss at the EBIT level, and saw its revenue drop to kr119m, which is a fall of 2.9%. We would much prefer see growth.

Caveat Emptor

Importantly, SECITS Holding had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable kr30m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident 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 kr8.7m over the last twelve months. So suffice it to say we consider the stock to be risky. 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 SECITS Holding (including 4 which are a bit concerning) .

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.