Would OrganoClick (STO:ORGC) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that OrganoClick AB (publ) (STO:ORGC) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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

How Much Debt Does OrganoClick Carry?

The image below, which you can click on for greater detail, shows that at September 2024 OrganoClick had debt of kr35.3m, up from kr24.7m in one year. However, because it has a cash reserve of kr4.34m, its net debt is less, at about kr31.0m.

How Healthy Is OrganoClick's Balance Sheet?

The latest balance sheet data shows that OrganoClick had liabilities of kr93.4m due within a year, and liabilities of kr7.15m falling due after that. Offsetting this, it had kr4.34m in cash and kr25.8m in receivables that were due within 12 months. So its liabilities total kr70.4m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since OrganoClick has a market capitalization of kr229.6m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. 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.

In the last year OrganoClick had a loss before interest and tax, and actually shrunk its revenue by 4.2%, to kr134m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months OrganoClick produced an earnings before interest and tax (EBIT) loss. Indeed, it lost kr10m at the EBIT level. 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 kr4.5m of cash over the last year. So suffice it to say we do consider the stock to be 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 - OrganoClick has 2 warning signs we think you should be aware of.

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.