Is Saniona (STO:SANION) Using Debt Sensibly?

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. We note that Saniona AB (publ) (STO:SANION) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Saniona

What Is Saniona's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Saniona had kr39.9m of debt in June 2024, down from kr66.4m, one year before. However, its balance sheet shows it holds kr54.4m in cash, so it actually has kr14.5m net cash.

A Look At Saniona's Liabilities

We can see from the most recent balance sheet that Saniona had liabilities of kr17.5m falling due within a year, and liabilities of kr68.0m due beyond that. Offsetting this, it had kr54.4m in cash and kr12.5m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr18.7m.

Since publicly traded Saniona shares are worth a total of kr576.2m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Saniona 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 Saniona's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Saniona wasn't profitable at an EBIT level, but managed to grow its revenue by 112%, to kr25m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Saniona?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Saniona lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of kr76m and booked a kr82m accounting loss. Given it only has net cash of kr14.5m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Saniona's revenue growth is hot to trot. High growth pre-profit companies may well be 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. We've identified 6 warning signs with Saniona (at least 3 which are concerning) , and understanding them should be part of your investment process.

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.