Is OrganoClick (STO:ORGC) Weighed On By Its Debt Load?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that OrganoClick AB (publ) (STO:ORGC) 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?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

See our latest analysis for OrganoClick

What Is OrganoClick's Net Debt?

You can click the graphic below for the historical numbers, but it shows that OrganoClick had kr18.4m of debt in December 2020, down from kr27.3m, one year before. But on the other hand it also has kr32.0m in cash, leading to a kr13.7m net cash position.

How Healthy Is OrganoClick's Balance Sheet?

We can see from the most recent balance sheet that OrganoClick had liabilities of kr45.2m falling due within a year, and liabilities of kr24.7m due beyond that. Offsetting this, it had kr32.0m in cash and kr11.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr26.8m.

Since publicly traded OrganoClick shares are worth a total of kr981.0m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, OrganoClick also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine OrganoClick's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, OrganoClick reported revenue of kr96m, which is a gain of 13%, 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.

So How Risky Is OrganoClick?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year OrganoClick had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of kr14m and booked a kr24m accounting loss. But at least it has kr13.7m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. For riskier companies like OrganoClick I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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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