Does Slottsviken Fastighetsaktiebolag (NGM:SLOTT B) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Slottsviken Fastighetsaktiebolag (publ) (NGM:SLOTT B) makes use of debt. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

See our latest analysis for Slottsviken Fastighetsaktiebolag

What Is Slottsviken Fastighetsaktiebolag's Net Debt?

The chart below, which you can click on for greater detail, shows that Slottsviken Fastighetsaktiebolag had kr26.3m in debt in June 2021; about the same as the year before. However, because it has a cash reserve of kr1.49m, its net debt is less, at about kr24.8m.

How Strong Is Slottsviken Fastighetsaktiebolag's Balance Sheet?

According to the last reported balance sheet, Slottsviken Fastighetsaktiebolag had liabilities of kr8.93m due within 12 months, and liabilities of kr38.0m due beyond 12 months. Offsetting these obligations, it had cash of kr1.49m as well as receivables valued at kr2.01m due within 12 months. So it has liabilities totalling kr43.4m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's kr40.8m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Slottsviken Fastighetsaktiebolag's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Slottsviken Fastighetsaktiebolag made a loss at the EBIT level, and saw its revenue drop to kr6.4m, which is a fall of 15%. We would much prefer see growth.

Caveat Emptor

Not only did Slottsviken Fastighetsaktiebolag's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at kr1.3m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of kr1.2m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Slottsviken Fastighetsaktiebolag has 4 warning signs (and 3 which are potentially serious) we think you should know about.

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.
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