Is 24SevenOffice Group (NGM:247) Weighed On By Its Debt Load?

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. We note that 24SevenOffice Group AB (publ) (NGM:247) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for 24SevenOffice Group

What Is 24SevenOffice Group's Debt?

You can click the graphic below for the historical numbers, but it shows that 24SevenOffice Group had kr243.0m of debt in March 2022, down from kr268.0m, one year before. But it also has kr351.8m in cash to offset that, meaning it has kr108.8m net cash.

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 kr95.7m due within 12 months and liabilities of kr286.9m due beyond that. Offsetting this, it had kr351.8m in cash and kr49.1m in receivables that were due within 12 months. So it actually has kr18.3m 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. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since 24SevenOffice Group will need earnings to service that debt. 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.

In the last year 24SevenOffice Group wasn't profitable at an EBIT level, but managed to grow its revenue by 31%, to kr228m. With any luck the company will be able to grow its way to profitability.

So How Risky Is 24SevenOffice Group?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year 24SevenOffice Group had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through kr54m of cash and made a loss of kr103m. With only kr108.8m on the balance sheet, it would appear that its going to need to raise capital again soon. 24SevenOffice Group's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. 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 doesn't sit too well with us!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.