Does Nitro Games Oyj (STO:NITRO) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Nitro Games Oyj (STO:NITRO) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for Nitro Games Oyj

What Is Nitro Games Oyj's Debt?

The image below, which you can click on for greater detail, shows that at September 2020 Nitro Games Oyj had debt of €3.24m, up from €643.7k in one year. However, it does have €3.98m in cash offsetting this, leading to net cash of €743.0k.

How Healthy Is Nitro Games Oyj's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nitro Games Oyj had liabilities of €528.6k due within 12 months and liabilities of €3.14m due beyond that. On the other hand, it had cash of €3.98m and €229.8k worth of receivables due within a year. So it actually has €543.2k more liquid assets than total liabilities.

This surplus suggests that Nitro Games Oyj has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Nitro Games Oyj 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 Nitro Games Oyj can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Nitro Games Oyj wasn't profitable at an EBIT level, but managed to grow its revenue by 53%, to €2.6m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Nitro Games Oyj?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Nitro Games Oyj had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €2.7m and booked a €2.5m accounting loss. With only €743.0k on the balance sheet, it would appear that its going to need to raise capital again soon. Nitro Games Oyj's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. 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. Case in point: We've spotted 5 warning signs for Nitro Games Oyj you should be aware of, and 2 of them make us uncomfortable.

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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