Is Gruvaktiebolaget Viscaria (STO:VISC) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Gruvaktiebolaget Viscaria (STO:VISC) makes use of debt. But should shareholders be worried about its use of debt?

Our free stock report includes 2 warning signs investors should be aware of before investing in Gruvaktiebolaget Viscaria. Read for free now.

When Is Debt Dangerous?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Gruvaktiebolaget Viscaria's Debt?

As you can see below, at the end of December 2024, Gruvaktiebolaget Viscaria had kr15.5m of debt, up from kr14.5m a year ago. Click the image for more detail. However, it does have kr231.8m in cash offsetting this, leading to net cash of kr216.3m.

How Healthy Is Gruvaktiebolaget Viscaria's Balance Sheet?

According to the last reported balance sheet, Gruvaktiebolaget Viscaria had liabilities of kr98.3m due within 12 months, and liabilities of kr80.3m due beyond 12 months. Offsetting this, it had kr231.8m in cash and kr22.3m in receivables that were due within 12 months. So it can boast kr75.5m more liquid assets than total liabilities.

This surplus suggests that Gruvaktiebolaget Viscaria has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Gruvaktiebolaget Viscaria has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Gruvaktiebolaget Viscaria 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.

View our latest analysis for Gruvaktiebolaget Viscaria

Over 12 months, Gruvaktiebolaget Viscaria reported revenue of kr331m, which is a gain of 27%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Gruvaktiebolaget Viscaria?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Gruvaktiebolaget Viscaria lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through kr452m of cash and made a loss of kr48m. With only kr216.3m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Gruvaktiebolaget Viscaria may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. Case in point: We've spotted 2 warning signs for Gruvaktiebolaget Viscaria you should be aware of, and 1 of them is concerning.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.