Is BHG Group (STO:BHG) Using Debt Sensibly?

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. We can see that BHG Group AB (publ) (STO:BHG) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does BHG Group Carry?

The image below, which you can click on for greater detail, shows that at March 2025 BHG Group had debt of kr2.26b, up from kr2.11b in one year. On the flip side, it has kr419.8m in cash leading to net debt of about kr1.84b.

A Look At BHG Group's Liabilities

Zooming in on the latest balance sheet data, we can see that BHG Group had liabilities of kr2.17b due within 12 months and liabilities of kr2.81b due beyond that. On the other hand, it had cash of kr419.8m and kr530.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr4.04b.

This deficit is considerable relative to its market capitalization of kr4.85b, so it does suggest shareholders should keep an eye on BHG Group's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine BHG Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for BHG Group

Over 12 months, BHG Group made a loss at the EBIT level, and saw its revenue drop to kr10b, which is a fall of 9.0%. That's not what we would hope to see.

Caveat Emptor

Importantly, BHG Group had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at kr271m. 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. We would feel better if it turned its trailing twelve month loss of kr592m into a profit. In the meantime, we consider the stock very risky. For riskier companies like BHG Group I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.