Nexam Chemical Holding (STO:NEXAM) Is Carrying A Fair Bit Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 note that Nexam Chemical Holding AB (publ) (STO:NEXAM) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Nexam Chemical Holding

What Is Nexam Chemical Holding's Net Debt?

The image below, which you can click on for greater detail, shows that Nexam Chemical Holding had debt of kr23.4m at the end of March 2024, a reduction from kr25.3m over a year. However, it also had kr9.91m in cash, and so its net debt is kr13.5m.

How Healthy Is Nexam Chemical Holding's Balance Sheet?

The latest balance sheet data shows that Nexam Chemical Holding had liabilities of kr35.1m due within a year, and liabilities of kr21.6m falling due after that. Offsetting these obligations, it had cash of kr9.91m as well as receivables valued at kr39.6m due within 12 months. So its liabilities total kr7.26m more than the combination of its cash and short-term receivables.

Of course, Nexam Chemical Holding has a market capitalization of kr272.7m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 Nexam Chemical Holding 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.

In the last year Nexam Chemical Holding had a loss before interest and tax, and actually shrunk its revenue by 13%, to kr191m. That's not what we would hope to see.

Caveat Emptor

Not only did Nexam Chemical Holding's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at kr18m. 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. Another cause for caution is that is bled kr18m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Nexam Chemical Holding is showing 2 warning signs in our investment analysis , 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. 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.