Is SSAB (STO:SSAB A) 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 SSAB AB (publ) (STO:SSAB A) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. 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. 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 SSAB

What Is SSAB's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 SSAB had kr9.56b of debt, an increase on kr8.20b, over one year. However, its balance sheet shows it holds kr24.5b in cash, so it actually has kr15.0b net cash.

A Look At SSAB's Liabilities

We can see from the most recent balance sheet that SSAB had liabilities of kr31.9b falling due within a year, and liabilities of kr13.0b due beyond that. Offsetting this, it had kr24.5b in cash and kr17.1b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr3.27b.

Since publicly traded SSAB shares are worth a total of kr62.8b, 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. Despite its noteworthy liabilities, SSAB boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if SSAB can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year SSAB wasn't profitable at an EBIT level, but managed to grow its revenue by 4.8%, to kr125b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is SSAB?

While SSAB lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow kr12b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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, we've discovered 1 warning sign for SSAB that you should be aware of before investing here.

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.