Does Footway Group (STO:FOOT B) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that Footway Group AB (publ) (STO:FOOT B) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 Footway Group

What Is Footway Group's Debt?

The chart below, which you can click on for greater detail, shows that Footway Group had kr277.0m in debt in March 2024; about the same as the year before. On the flip side, it has kr10.0m in cash leading to net debt of about kr267.0m.

How Strong Is Footway Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Footway Group had liabilities of kr385.0m due within 12 months and no liabilities due beyond that. On the other hand, it had cash of kr10.0m and kr43.0m worth of receivables due within a year. So its liabilities total kr332.0m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the kr131.1m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Footway Group would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is Footway Group'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, Footway Group made a loss at the EBIT level, and saw its revenue drop to kr685m, which is a fall of 37%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Footway Group's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping kr104m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized kr45m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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. Be aware that Footway Group is showing 5 warning signs in our investment analysis , and 3 of those are potentially serious...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.