Does Oscar Properties Holding (STO:OP) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Oscar Properties Holding AB (publ) (STO:OP) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Oscar Properties Holding

What Is Oscar Properties Holding's Net Debt?

The image below, which you can click on for greater detail, shows that Oscar Properties Holding had debt of kr870.6m at the end of September 2020, a reduction from kr1.29b over a year. On the flip side, it has kr32.9m in cash leading to net debt of about kr837.7m.

How Strong Is Oscar Properties Holding's Balance Sheet?

According to the last reported balance sheet, Oscar Properties Holding had liabilities of kr1.35b due within 12 months, and liabilities of kr77.8m due beyond 12 months. Offsetting these obligations, it had cash of kr32.9m as well as receivables valued at kr599.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr792.0m.

The deficiency here weighs heavily on the kr84.7m 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'd watch its balance sheet closely, without a doubt. At the end of the day, Oscar Properties Holding would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Oscar Properties Holding's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Oscar Properties Holding had a loss before interest and tax, and actually shrunk its revenue by 73%, to kr246m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Oscar Properties Holding's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable kr136m at the EBIT level. When you combine this with the very significant balance sheet liabilities mentioned above, we are so wary of it that we are basically at a loss for the right words. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost kr83m in the last year. So we think buying this stock is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Take risks, for example - Oscar Properties Holding has 5 warning signs (and 3 which make us uncomfortable) we think you should know about.

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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