New Nordic Healthbrands (STO:NNH) Is Carrying A Fair Bit Of Debt

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. Importantly, New Nordic Healthbrands AB (publ) (STO:NNH) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for New Nordic Healthbrands

What Is New Nordic Healthbrands's Debt?

As you can see below, at the end of September 2024, New Nordic Healthbrands had kr45.4m of debt, up from kr35.9m a year ago. Click the image for more detail. However, it does have kr10.1m in cash offsetting this, leading to net debt of about kr35.3m.

How Healthy Is New Nordic Healthbrands' Balance Sheet?

According to the last reported balance sheet, New Nordic Healthbrands had liabilities of kr140.0m due within 12 months, and liabilities of kr2.26m due beyond 12 months. On the other hand, it had cash of kr10.1m and kr91.1m worth of receivables due within a year. So its liabilities total kr41.0m more than the combination of its cash and short-term receivables.

New Nordic Healthbrands has a market capitalization of kr99.1m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is New Nordic Healthbrands's earnings that will influence how the balance sheet holds up in the future. 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, New Nordic Healthbrands reported revenue of kr543m, which is a gain of 8.0%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months New Nordic Healthbrands produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping kr11m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 kr12m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - New Nordic Healthbrands has 2 warning signs we think you should be aware of.

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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