Is Northbaze Group (STO:NBZ) Using Debt In A Risky Way?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Northbaze Group AB (publ) (STO:NBZ) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Northbaze Group

How Much Debt Does Northbaze Group Carry?

As you can see below, at the end of September 2024, Northbaze Group had kr46.9m of debt, up from kr32.2m a year ago. Click the image for more detail. On the flip side, it has kr14.2m in cash leading to net debt of about kr32.7m.

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 kr118.6m due within 12 months and liabilities of kr6.94m due beyond that. Offsetting this, it had kr14.2m in cash and kr37.6m in receivables that were due within 12 months. So its liabilities total kr73.7m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the kr34.2m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Northbaze Group would likely require a major re-capitalisation if it had to pay its creditors today. 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 27%, to kr166m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Northbaze Group still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable kr14m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of kr23m. And until that time we think this is a risky stock. 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. For example - Northbaze Group has 3 warning signs we think you should be aware of.

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.