Bactiguard Holding (STO:BACTI B) Has Debt But No Earnings; Should You Worry?

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 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 can see that Bactiguard Holding AB (publ) (STO:BACTI B) does use debt in its business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Bactiguard Holding

What Is Bactiguard Holding's Debt?

The chart below, which you can click on for greater detail, shows that Bactiguard Holding had kr179.3m in debt in December 2022; about the same as the year before. However, its balance sheet shows it holds kr197.7m in cash, so it actually has kr18.5m net cash.

How Strong Is Bactiguard Holding's Balance Sheet?

The latest balance sheet data shows that Bactiguard Holding had liabilities of kr84.2m due within a year, and liabilities of kr227.8m falling due after that. On the other hand, it had cash of kr197.7m and kr54.4m worth of receivables due within a year. So its liabilities total kr59.9m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Bactiguard Holding's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the kr3.34b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Bactiguard Holding also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Bactiguard Holding 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.

Over 12 months, Bactiguard Holding reported revenue of kr232m, which is a gain of 32%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Bactiguard Holding?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Bactiguard Holding had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of kr7.9m and booked a kr53m accounting loss. With only kr18.5m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Bactiguard Holding may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Bactiguard Holding is showing 1 warning sign in our investment analysis , 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. 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.