Here's Why Klaria Pharma Holding AB (publ.) (STO:KLAR) Can Afford Some Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 Klaria Pharma Holding AB (publ.) (STO:KLAR) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

What Is Klaria Pharma Holding AB (publ.)'s Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Klaria Pharma Holding AB (publ.) had debt of kr22.9m, up from kr19.6m in one year. However, because it has a cash reserve of kr598.0k, its net debt is less, at about kr22.3m.

How Strong Is Klaria Pharma Holding AB (publ.)'s Balance Sheet?

We can see from the most recent balance sheet that Klaria Pharma Holding AB (publ.) had liabilities of kr53.3m falling due within a year, and liabilities of kr617.0k due beyond that. On the other hand, it had cash of kr598.0k and kr1.27m worth of receivables due within a year. So it has liabilities totalling kr52.1m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Klaria Pharma Holding AB (publ.) has a market capitalization of kr136.1m, 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Klaria Pharma Holding AB (publ.) 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.

See our latest analysis for Klaria Pharma Holding AB (publ.)

In the last year Klaria Pharma Holding AB (publ.) had a loss before interest and tax, and actually shrunk its revenue by 73%, to kr2.2m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Klaria Pharma Holding AB (publ.)'s revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping kr31m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled kr12m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 5 warning signs for Klaria Pharma Holding AB (publ.) (3 are significant) you should be aware of.

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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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.