Does Storytel (STO:STORY B) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Storytel AB (publ) (STO:STORY B) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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.

View our latest analysis for Storytel

What Is Storytel's Debt?

The image below, which you can click on for greater detail, shows that Storytel had debt of kr100.0m at the end of December 2023, a reduction from kr1.10b over a year. However, its balance sheet shows it holds kr436.1m in cash, so it actually has kr336.1m net cash.

How Healthy Is Storytel's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Storytel had liabilities of kr1.69b due within 12 months and liabilities of kr179.2m due beyond that. Offsetting these obligations, it had cash of kr436.1m as well as receivables valued at kr564.1m due within 12 months. So its liabilities total kr867.2m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Storytel has a market capitalization of kr3.99b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Storytel also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Storytel'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.

In the last year Storytel wasn't profitable at an EBIT level, but managed to grow its revenue by 9.0%, to kr3.5b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Storytel?

While Storytel lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow kr242m. 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. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. Be aware that Storytel is showing 2 warning signs in our investment analysis , you should know about...

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.

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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.