Here's Why Aktiebolaget Fastator (STO:FASTAT) Can Afford Some Debt

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 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. We note that Aktiebolaget Fastator (publ) (STO:FASTAT) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Aktiebolaget Fastator

What Is Aktiebolaget Fastator's Debt?

As you can see below, at the end of December 2020, Aktiebolaget Fastator had kr1.59b of debt, up from kr1.27b a year ago. Click the image for more detail. However, because it has a cash reserve of kr925.4m, its net debt is less, at about kr662.7m.

A Look At Aktiebolaget Fastator's Liabilities

Zooming in on the latest balance sheet data, we can see that Aktiebolaget Fastator had liabilities of kr515.9m due within 12 months and liabilities of kr1.27b due beyond that. Offsetting these obligations, it had cash of kr925.4m as well as receivables valued at kr238.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr622.9m.

Aktiebolaget Fastator has a market capitalization of kr1.61b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is Aktiebolaget Fastator'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 Aktiebolaget Fastator wasn't profitable at an EBIT level, but managed to grow its revenue by 20%, to kr263m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Aktiebolaget Fastator still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at kr20m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled kr19m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Aktiebolaget Fastator (of which 1 is a bit concerning!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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