Bactiguard Holding (STO:BACTI B) Is Making Moderate Use Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Bactiguard Holding AB (publ) (STO:BACTI B) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View 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 kr175.1m in debt in June 2024; about the same as the year before. However, it also had kr105.3m in cash, and so its net debt is kr69.8m.

A Look At Bactiguard Holding's Liabilities

We can see from the most recent balance sheet that Bactiguard Holding had liabilities of kr295.3m falling due within a year, and liabilities of kr53.6m due beyond that. Offsetting these obligations, it had cash of kr105.3m as well as receivables valued at kr47.9m due within 12 months. So its liabilities total kr195.6m more than the combination of its cash and short-term receivables.

Given Bactiguard Holding has a market capitalization of kr2.48b, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Bactiguard Holding can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Bactiguard Holding had a loss before interest and tax, and actually shrunk its revenue by 8.8%, to kr211m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Bactiguard Holding produced an earnings before interest and tax (EBIT) loss. Indeed, it lost kr58m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through kr44m of cash over the last year. So to be blunt we think it is risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Bactiguard Holding insider transactions.

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.