Nischer Properties (NGM:NIS) Is Carrying A Fair Bit Of 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 Nischer Properties AB (publ) (NGM:NIS) makes use of debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Nischer Properties

What Is Nischer Properties's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Nischer Properties had kr134.1m of debt, an increase on kr36.0m, over one year. On the flip side, it has kr81.9m in cash leading to net debt of about kr52.2m.

A Look At Nischer Properties' Liabilities

According to the last reported balance sheet, Nischer Properties had liabilities of kr11.4m due within 12 months, and liabilities of kr183.4m due beyond 12 months. On the other hand, it had cash of kr81.9m and kr3.89m worth of receivables due within a year. So it has liabilities totalling kr109.0m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of kr165.8m, so it does suggest shareholders should keep an eye on Nischer Properties' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Nischer Properties can strengthen its balance sheet over time. 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 Nischer Properties had a loss before interest and tax, and actually shrunk its revenue by 25%, to kr4.7m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Nischer Properties's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable kr17m at the EBIT level. 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. However, it doesn't help that it burned through kr38m of cash over the last year. So in short it's a really risky stock. 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. For instance, we've identified 4 warning signs for Nischer Properties (3 are a bit concerning) you should be aware of.

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.