Does Zordix (STO:ZORDIX B) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, Zordix AB (publ) (STO:ZORDIX B) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Zordix

What Is Zordix's Net Debt?

As you can see below, at the end of June 2021, Zordix had kr47.6m of debt, up from kr9.09m a year ago. Click the image for more detail. But on the other hand it also has kr107.5m in cash, leading to a kr59.9m net cash position.

How Strong Is Zordix's Balance Sheet?

The latest balance sheet data shows that Zordix had liabilities of kr184.6m due within a year, and liabilities of kr246.6m falling due after that. Offsetting these obligations, it had cash of kr107.5m as well as receivables valued at kr91.8m due within 12 months. So its liabilities total kr231.9m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Zordix has a market capitalization of kr980.2m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Zordix 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 Zordix's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Zordix reported revenue of kr132m, which is a gain of 350%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Zordix?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Zordix had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through kr51m of cash and made a loss of kr7.1m. Given it only has net cash of kr59.9m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Zordix has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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 3 warning signs for Zordix you should be aware of, and 2 of them are potentially serious.

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.

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.

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