Is 24SevenOffice Group (NGM:247) Using Debt In A Risky Way?

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.' 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, 24SevenOffice Group AB (publ) (NGM:247) does carry debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out 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 September 2021 24SevenOffice Group had debt of kr303.8m, up from kr24.9m in one year. But on the other hand it also has kr403.9m in cash, leading to a kr100.1m net cash position.

How Healthy Is 24SevenOffice Group's Balance Sheet?

The latest balance sheet data shows that 24SevenOffice Group had liabilities of kr100.3m due within a year, and liabilities of kr304.7m falling due after that. Offsetting these obligations, it had cash of kr403.9m as well as receivables valued at kr46.5m due within 12 months. So it can boast kr45.5m more liquid assets than total liabilities.

This short term liquidity is a sign that 24SevenOffice Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that 24SevenOffice Group has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine 24SevenOffice 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.

Over 12 months, 24SevenOffice Group reported revenue of kr196m, which is a gain of 15%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is 24SevenOffice Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months 24SevenOffice Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of kr56m and booked a kr56m accounting loss. With only kr100.1m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Case in point: We've spotted 2 warning signs for 24SevenOffice Group you should be aware of.

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.