Is Saniona (STO:SANION) Weighed On By Its Debt Load?

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 Saniona AB (publ) (STO:SANION) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Saniona

What Is Saniona's Net Debt?

The image below, which you can click on for greater detail, shows that Saniona had debt of kr39.5m at the end of March 2024, a reduction from kr71.5m over a year. However, its balance sheet shows it holds kr71.4m in cash, so it actually has kr31.9m net cash.

A Look At Saniona's Liabilities

We can see from the most recent balance sheet that Saniona had liabilities of kr16.8m falling due within a year, and liabilities of kr63.6m due beyond that. On the other hand, it had cash of kr71.4m and kr11.3m worth of receivables due within a year. So it actually has kr2.31m more liquid assets than total liabilities.

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 it's very unlikely that the kr556.2m company is short on cash, but still worth keeping an eye on the 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.

Over 12 months, Saniona reported revenue of kr21m, which is a gain of 91%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Saniona?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Saniona had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of kr80m and booked a kr83m accounting loss. Given it only has net cash of kr31.9m, the company may need to raise more capital if it doesn't reach break-even soon. Saniona's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 6 warning signs we've spotted with Saniona (including 2 which make us uncomfortable) .

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.

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