Is Transiro Holding (NGM:TIRO) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. 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?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Transiro Holding's Net Debt?

As you can see below, Transiro Holding had kr29.6m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have kr8.66m in cash offsetting this, leading to net debt of about kr20.9m.

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 kr17.0m due within 12 months and liabilities of kr29.6m due beyond that. Offsetting this, it had kr8.66m in cash and kr2.92m in receivables that were due within 12 months. So it has liabilities totalling kr35.0m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of kr27.4m, we think shareholders really should watch Transiro Holding's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Transiro Holding's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Transiro Holding

In the last year Transiro Holding had a loss before interest and tax, and actually shrunk its revenue by 6.9%, to kr31m. We would much prefer see growth.

Caveat Emptor

Importantly, Transiro Holding had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at kr1.5m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of kr2.4m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Transiro Holding (of which 2 are concerning!) you should know about.

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.