Is SECITS Holding (STO:SECI) Weighed On By Its Debt Load?

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.' 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 SECITS Holding AB (publ) (STO:SECI) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for SECITS Holding

How Much Debt Does SECITS Holding Carry?

As you can see below, at the end of March 2023, SECITS Holding had kr34.4m of debt, up from kr19.4m a year ago. Click the image for more detail. However, because it has a cash reserve of kr1.09m, its net debt is less, at about kr33.3m.

How Strong Is SECITS Holding's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SECITS Holding had liabilities of kr53.5m due within 12 months and liabilities of kr53.9m due beyond that. On the other hand, it had cash of kr1.09m and kr27.6m worth of receivables due within a year. So it has liabilities totalling kr78.8m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the kr43.0m company, like a colossus towering over mere mortals. 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 it is SECITS Holding's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, SECITS Holding reported revenue of kr128m, which is a gain of 29%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, SECITS Holding still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable kr30m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of kr38m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for SECITS Holding you should be aware of, and 3 of them are significant.

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.