Does Nobia (STO:NOBI) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Nobia AB (publ) (STO:NOBI) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Nobia

What Is Nobia's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Nobia had kr3.38b of debt, an increase on kr1.98b, over one year. On the flip side, it has kr330.0m in cash leading to net debt of about kr3.05b.

How Strong Is Nobia's Balance Sheet?

We can see from the most recent balance sheet that Nobia had liabilities of kr4.22b falling due within a year, and liabilities of kr5.24b due beyond that. Offsetting these obligations, it had cash of kr330.0m as well as receivables valued at kr2.34b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr6.79b.

The deficiency here weighs heavily on the kr1.61b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Nobia 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 ultimately the future profitability of the business will decide if Nobia 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 Nobia had a loss before interest and tax, and actually shrunk its revenue by 3.8%, to kr14b. That's not what we would hope to see.

Caveat Emptor

Importantly, Nobia had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost kr139m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized kr717m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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. Case in point: We've spotted 2 warning signs for Nobia you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.