Is Northbaze Group (STO:NBZ) A Risky Investment?

Warren Buffett famously said, '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 note that Northbaze Group AB (publ) (STO:NBZ) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

View our latest analysis for Northbaze Group

How Much Debt Does Northbaze Group Carry?

As you can see below, at the end of September 2020, Northbaze Group had kr21.4m of debt, up from kr5.78m a year ago. Click the image for more detail. However, it also had kr8.69m in cash, and so its net debt is kr12.7m.

How Healthy Is Northbaze Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Northbaze Group had liabilities of kr36.1m due within 12 months and liabilities of kr10.4m due beyond that. Offsetting these obligations, it had cash of kr8.69m as well as receivables valued at kr17.7m due within 12 months. So its liabilities total kr20.1m more than the combination of its cash and short-term receivables.

Since publicly traded Northbaze Group shares are worth a total of kr149.7m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. There's no doubt that we learn most about debt from the balance sheet. 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.

Over 12 months, Northbaze Group made a loss at the EBIT level, and saw its revenue drop to kr120m, which is a fall of 3.4%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Northbaze Group produced an earnings before interest and tax (EBIT) loss. Indeed, it lost kr7.0m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled kr14m in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs 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. 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.
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