Does Kambi Group (STO:KAMBI) Have A Healthy Balance Sheet?

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. As with many other companies Kambi Group plc (STO:KAMBI) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 Kambi Group

How Much Debt Does Kambi Group Carry?

The chart below, which you can click on for greater detail, shows that Kambi Group had €7.39m in debt in September 2021; about the same as the year before. However, its balance sheet shows it holds €84.8m in cash, so it actually has €77.4m net cash.

How Healthy Is Kambi Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kambi Group had liabilities of €32.8m due within 12 months and liabilities of €28.1m due beyond that. Offsetting these obligations, it had cash of €84.8m as well as receivables valued at €37.8m due within 12 months. So it can boast €61.7m more liquid assets than total liabilities.

This surplus suggests that Kambi Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Kambi Group boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Kambi Group grew its EBIT by 348% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. 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 Kambi 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Kambi Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Kambi Group recorded free cash flow worth 65% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Kambi Group has net cash of €77.4m, as well as more liquid assets than liabilities. And we liked the look of last year's 348% year-on-year EBIT growth. So is Kambi Group's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in Kambi Group would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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.

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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