Does Bactiguard Holding (STO:BACTI B) Have A Healthy Balance Sheet?

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.' 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 note that Bactiguard Holding AB (publ) (STO:BACTI B) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Bactiguard Holding

What Is Bactiguard Holding's Debt?

The image below, which you can click on for greater detail, shows that Bactiguard Holding had debt of kr179.5m at the end of September 2021, a reduction from kr194.5m over a year. But it also has kr235.5m in cash to offset that, meaning it has kr56.0m net cash.

How Healthy Is Bactiguard Holding's Balance Sheet?

We can see from the most recent balance sheet that Bactiguard Holding had liabilities of kr51.5m falling due within a year, and liabilities of kr247.7m due beyond that. Offsetting these obligations, it had cash of kr235.5m as well as receivables valued at kr59.4m due within 12 months. So these liquid assets roughly match the total liabilities.

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 kr5.26b 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. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Bactiguard Holding will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Bactiguard Holding reported revenue of kr216m, which is a gain of 39%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Bactiguard Holding?

While Bactiguard Holding lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow kr9.5m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. One positive is that Bactiguard Holding is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Bactiguard Holding you should be aware of, and 1 of them is 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.