Brighter (STO:BRIG) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

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.' 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 Brighter AB (publ) (STO:BRIG) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Brighter

How Much Debt Does Brighter Carry?

The image below, which you can click on for greater detail, shows that at September 2020 Brighter had debt of kr14.2m, up from none in one year. But on the other hand it also has kr14.4m in cash, leading to a kr198.0k net cash position.

How Strong Is Brighter's Balance Sheet?

The latest balance sheet data shows that Brighter had liabilities of kr38.9m due within a year, and liabilities of kr9.27m falling due after that. On the other hand, it had cash of kr14.4m and kr93.8m worth of receivables due within a year. So it can boast kr60.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Brighter could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Brighter boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Brighter 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.

Over 12 months, Brighter reported revenue of kr58m, which is a gain of 62%, 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 Brighter?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Brighter had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through kr264m of cash and made a loss of kr162m. Given it only has net cash of kr198.0k, the company may need to raise more capital if it doesn't reach break-even soon. Brighter's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Take risks, for example - Brighter has 6 warning signs (and 2 which are concerning) we think you should know about.

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. 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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