Northbaze Group (STO:NBZ) Is Making Moderate Use Of Debt

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. As with many other companies Northbaze Group AB (publ) (STO:NBZ) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Northbaze Group

What Is Northbaze Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Northbaze Group had kr17.5m of debt in June 2021, down from kr21.8m, one year before. However, it does have kr12.9m in cash offsetting this, leading to net debt of about kr4.58m.

How Healthy Is Northbaze Group's Balance Sheet?

The latest balance sheet data shows that Northbaze Group had liabilities of kr32.7m due within a year, and liabilities of kr1.84m falling due after that. Offsetting these obligations, it had cash of kr12.9m as well as receivables valued at kr5.01m due within 12 months. So its liabilities total kr16.6m more than the combination of its cash and short-term receivables.

Since publicly traded Northbaze Group shares are worth a total of kr125.2m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Northbaze Group will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Northbaze Group wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to kr143m. 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. Indeed, it lost kr2.9m at the EBIT level. 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. We would feel better if it turned its trailing twelve month loss of kr7.4m into a profit. So in short it's a really risky stock. 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 be aware of the 2 warning signs we've spotted with Northbaze Group .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.
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