Is 24SevenOffice Group (NGM:247) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 24SevenOffice Group AB (publ) (NGM:247) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for 24SevenOffice Group

How Much Debt Does 24SevenOffice Group Carry?

The image below, which you can click on for greater detail, shows that at December 2023 24SevenOffice Group had debt of kr245.9m, up from kr232.8m in one year. However, it also had kr85.1m in cash, and so its net debt is kr160.9m.

How Strong Is 24SevenOffice Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that 24SevenOffice Group had liabilities of kr117.2m due within 12 months and liabilities of kr293.3m due beyond that. Offsetting this, it had kr85.1m in cash and kr68.9m in receivables that were due within 12 months. So it has liabilities totalling kr256.5m more than its cash and near-term receivables, combined.

This deficit isn't so bad because 24SevenOffice Group is worth kr907.3m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is 24SevenOffice Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year 24SevenOffice Group wasn't profitable at an EBIT level, but managed to grow its revenue by 27%, to kr327m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, 24SevenOffice Group still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable kr129m at the EBIT level. 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. However, it doesn't help that it burned through kr59m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for 24SevenOffice Group (of which 1 is a bit concerning!) you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.