Is Acroud (STO:ACROUD) Weighed On By Its Debt Load?

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 Acroud AB (publ) (STO:ACROUD) does use debt in its business. But the more important question is: how much risk is that debt creating?

Our free stock report includes 4 warning signs investors should be aware of before investing in Acroud. Read for free now.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Acroud's Debt?

The chart below, which you can click on for greater detail, shows that Acroud had €17.8m in debt in December 2024; about the same as the year before. On the flip side, it has €1.60m in cash leading to net debt of about €16.2m.

How Strong Is Acroud's Balance Sheet?

According to the last reported balance sheet, Acroud had liabilities of €24.6m due within 12 months, and liabilities of €2.53m due beyond 12 months. On the other hand, it had cash of €1.60m and €2.23m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €23.3m.

Given this deficit is actually higher than the company's market capitalization of €15.7m, we think shareholders really should watch Acroud's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Acroud 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.

Check out our latest analysis for Acroud

In the last year Acroud's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Over the last twelve months Acroud produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €65k. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of €3.3m. In the meantime, we consider the stock to be risky. 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. Be aware that Acroud is showing 4 warning signs in our investment analysis , and 3 of those are significant...

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.