Here's Why Nord Insuretech Group (NGM:NORDIG) Can Afford Some Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that Nord Insuretech Group AB (publ) (NGM:NORDIG) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Nord Insuretech Group Carry?

The image below, which you can click on for greater detail, shows that Nord Insuretech Group had debt of kr30.4m at the end of December 2024, a reduction from kr54.7m over a year. On the flip side, it has kr4.68m in cash leading to net debt of about kr25.7m.

A Look At Nord Insuretech Group's Liabilities

We can see from the most recent balance sheet that Nord Insuretech Group had liabilities of kr53.9m falling due within a year, and liabilities of kr1.55m due beyond that. On the other hand, it had cash of kr4.68m and kr14.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr36.5m.

This deficit isn't so bad because Nord Insuretech Group is worth kr65.7m, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is Nord Insuretech 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.

See our latest analysis for Nord Insuretech Group

In the last year Nord Insuretech Group had a loss before interest and tax, and actually shrunk its revenue by 59%, to kr3.3m. That makes us nervous, to say the least.

Caveat Emptor

While Nord Insuretech Group's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost a very considerable kr36m 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled kr27m in negative free cash flow over the last twelve months. 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. To that end, you should be aware of the 4 warning signs we've spotted with Nord Insuretech Group .

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.

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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.