Nordrest Holding (STO:NREST) Has A Rock Solid Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Nordrest Holding AB (publ) (STO:NREST) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Nordrest Holding's Debt?

As you can see below, Nordrest Holding had kr44.4m of debt at June 2025, down from kr72.1m a year prior. However, its balance sheet shows it holds kr176.1m in cash, so it actually has kr131.7m net cash.

How Healthy Is Nordrest Holding's Balance Sheet?

According to the last reported balance sheet, Nordrest Holding had liabilities of kr380.8m due within 12 months, and liabilities of kr155.3m due beyond 12 months. Offsetting these obligations, it had cash of kr176.1m as well as receivables valued at kr154.6m due within 12 months. So its liabilities total kr205.4m more than the combination of its cash and short-term receivables.

Given Nordrest Holding has a market capitalization of kr2.69b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Nordrest Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Nordrest Holding

Also good is that Nordrest Holding grew its EBIT at 14% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Nordrest Holding's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Nordrest Holding has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Nordrest Holding recorded free cash flow worth a fulsome 83% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Nordrest Holding has kr131.7m in net cash. The cherry on top was that in converted 83% of that EBIT to free cash flow, bringing in kr163m. So is Nordrest Holding's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in Nordrest Holding 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.

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.