Is Eyeonid Group (NGM:EOID) A Risky Investment?

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.' 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, Eyeonid Group AB (publ) (NGM:EOID) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Eyeonid Group

How Much Debt Does Eyeonid Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Eyeonid Group had kr23.8m of debt, an increase on none, over one year. On the flip side, it has kr9.64m in cash leading to net debt of about kr14.1m.

How Strong Is Eyeonid Group's Balance Sheet?

We can see from the most recent balance sheet that Eyeonid Group had liabilities of kr21.8m falling due within a year, and liabilities of kr23.8m due beyond that. Offsetting this, it had kr9.64m in cash and kr2.16m in receivables that were due within 12 months. So it has liabilities totalling kr33.7m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Eyeonid Group is worth kr104.0m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Eyeonid 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 Eyeonid Group wasn't profitable at an EBIT level, but managed to grow its revenue by 120%, to kr25m. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Even though Eyeonid Group managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable kr38m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through kr37m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 6 warning signs we've spotted with Eyeonid Group (including 3 which are a bit concerning) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.

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