Is Saniona (STO:SANION) Using Too Much Debt?

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 Saniona AB (publ) (STO:SANION) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Saniona

How Much Debt Does Saniona Carry?

As you can see below, Saniona had kr71.5m of debt at March 2023, down from kr83.6m a year prior. But on the other hand it also has kr87.8m in cash, leading to a kr16.3m net cash position.

A Look At Saniona's Liabilities

The latest balance sheet data shows that Saniona had liabilities of kr92.9m due within a year, and liabilities of kr6.27m falling due after that. Offsetting this, it had kr87.8m in cash and kr12.9m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Saniona's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the kr498.5m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Saniona boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Saniona 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 Saniona had a loss before interest and tax, and actually shrunk its revenue by 21%, to kr11m. To be frank that doesn't bode well.

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 kr212m and booked a kr134m accounting loss. Given it only has net cash of kr16.3m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 5 warning signs for Saniona you should be aware of, and 2 of them are significant.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.