Health Check: How Prudently Does Transiro Holding (NGM:TIRO) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Transiro Holding AB (publ) (NGM:TIRO) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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.

View our latest analysis for Transiro Holding

What Is Transiro Holding's Debt?

As you can see below, Transiro Holding had kr29.6m of debt at March 2024, down from kr37.0m a year prior. However, because it has a cash reserve of kr3.15m, its net debt is less, at about kr26.4m.

How Strong Is Transiro Holding's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Transiro Holding had liabilities of kr19.8m due within 12 months and liabilities of kr29.6m due beyond that. On the other hand, it had cash of kr3.15m and kr6.62m worth of receivables due within a year. So its liabilities total kr39.7m more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's kr30.5m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. 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 Transiro Holding will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Transiro Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 5.9%, to kr34m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Transiro Holding had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping kr4.7m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through kr1.8m in negative free cash flow over the last year. That means it's on the risky side of things. 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 4 warning signs for Transiro Holding you should be aware of, and 3 of them are a bit unpleasant.

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.