Is Everysport Group AB (publ.) (NGM:EVERY) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Everysport Group AB (publ.) (NGM:EVERY) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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.

Check out our latest analysis for Everysport Group AB (publ.)

What Is Everysport Group AB (publ.)'s Debt?

You can click the graphic below for the historical numbers, but it shows that Everysport Group AB (publ.) had kr39.1m of debt in June 2023, down from kr208.2m, one year before. However, it also had kr7.58m in cash, and so its net debt is kr31.5m.

A Look At Everysport Group AB (publ.)'s Liabilities

The latest balance sheet data shows that Everysport Group AB (publ.) had liabilities of kr110.1m due within a year, and liabilities of kr37.5m falling due after that. On the other hand, it had cash of kr7.58m and kr18.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr121.1m.

When you consider that this deficiency exceeds the company's kr118.9m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. 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 Everysport Group AB (publ.)'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, Everysport Group AB (publ.) made a loss at the EBIT level, and saw its revenue drop to kr174m, which is a fall of 14%. That's not what we would hope to see.

Caveat Emptor

Not only did Everysport Group AB (publ.)'s revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable kr28m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of kr38m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Everysport Group AB (publ.) you should be aware of, and 1 of them is significant.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.