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

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Slottsviken Fastighetsaktiebolag (publ) (NGM:SLOTT B) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Slottsviken Fastighetsaktiebolag

What Is Slottsviken Fastighetsaktiebolag's Debt?

As you can see below, Slottsviken Fastighetsaktiebolag had kr26.4m of debt, at September 2021, which is about the same as the year before. You can click the chart for greater detail. However, it does have kr956.0k in cash offsetting this, leading to net debt of about kr25.4m.

How Healthy Is Slottsviken Fastighetsaktiebolag's Balance Sheet?

According to the last reported balance sheet, Slottsviken Fastighetsaktiebolag had liabilities of kr6.85m due within 12 months, and liabilities of kr37.8m due beyond 12 months. Offsetting these obligations, it had cash of kr956.0k as well as receivables valued at kr676.0k due within 12 months. So its liabilities total kr43.0m more than the combination of its cash and short-term receivables.

Given this deficit is actually higher than the company's market capitalization of kr33.4m, we think shareholders really should watch Slottsviken Fastighetsaktiebolag's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. 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.

In the last year Slottsviken Fastighetsaktiebolag had a loss before interest and tax, and actually shrunk its revenue by 18%, to kr6.1m. That's not what we would hope to see.

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 kr1.2m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of kr1.2m over the last twelve months. That means it's on the risky side of things. 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. Be aware that Slottsviken Fastighetsaktiebolag is showing 3 warning signs in our investment analysis , 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.