Does M.O.B.A. Network (STO:MOBA) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies M.O.B.A. Network AB (publ) (STO:MOBA) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for M.O.B.A. Network

How Much Debt Does M.O.B.A. Network Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 M.O.B.A. Network had kr20.0m of debt, an increase on kr6.67m, over one year. However, its balance sheet shows it holds kr34.8m in cash, so it actually has kr14.8m net cash.

A Look At M.O.B.A. Network's Liabilities

According to the last reported balance sheet, M.O.B.A. Network had liabilities of kr41.6m due within 12 months, and liabilities of kr39.2m due beyond 12 months. Offsetting these obligations, it had cash of kr34.8m as well as receivables valued at kr35.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr10.7m.

This state of affairs indicates that M.O.B.A. Network's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the kr551.2m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, M.O.B.A. Network boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, M.O.B.A. Network grew its EBIT by 131% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since M.O.B.A. Network will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While M.O.B.A. Network has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, M.O.B.A. Network saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that M.O.B.A. Network has kr14.8m in net cash. And we liked the look of last year's 131% year-on-year EBIT growth. So we are not troubled with M.O.B.A. Network's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with M.O.B.A. Network (at least 1 which is concerning) , and understanding them should be part of your investment process.

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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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.