Does Boozt (STO:BOOZT) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Boozt AB (publ) (STO:BOOZT) does carry debt. 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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Boozt

How Much Debt Does Boozt Carry?

As you can see below, Boozt had kr404.0m of debt at September 2024, down from kr447.0m a year prior. But it also has kr641.0m in cash to offset that, meaning it has kr237.0m net cash.

How Strong Is Boozt's Balance Sheet?

According to the last reported balance sheet, Boozt had liabilities of kr3.00b due within 12 months, and liabilities of kr753.0m due beyond 12 months. Offsetting this, it had kr641.0m in cash and kr254.0m in receivables that were due within 12 months. So its liabilities total kr2.86b more than the combination of its cash and short-term receivables.

Boozt has a market capitalization of kr7.50b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Boozt also has more cash than debt, so we're pretty confident it can manage its debt safely.

The good news is that Boozt has increased its EBIT by 8.4% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Boozt's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Boozt may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Boozt created free cash flow amounting to 2.6% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

Although Boozt's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of kr237.0m. On top of that, it increased its EBIT by 8.4% in the last twelve months. So we don't have any problem with Boozt's use of debt. Of course, we wouldn't say no to the extra confidence that we'd gain if we knew that Boozt insiders have been buying shares: if you're on the same wavelength, you can find out if insiders are buying by clicking this link.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.