Does Northbaze Group (STO:NBZ) Have A Healthy Balance Sheet?

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.' 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 Northbaze Group AB (publ) (STO:NBZ) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Northbaze Group

How Much Debt Does Northbaze Group Carry?

As you can see below, Northbaze Group had kr17.7m of debt at September 2021, down from kr21.5m a year prior. However, it also had kr7.86m in cash, and so its net debt is kr9.84m.

A Look At Northbaze Group's Liabilities

According to the last reported balance sheet, Northbaze Group had liabilities of kr39.5m due within 12 months, and liabilities of kr1.31m due beyond 12 months. Offsetting these obligations, it had cash of kr7.86m as well as receivables valued at kr14.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr18.9m.

Given Northbaze Group has a market capitalization of kr124.7m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Northbaze Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Northbaze Group wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to kr140m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Northbaze Group had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at kr2.6m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of kr6.3m. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. 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 Northbaze Group .

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.