We Think 24SevenOffice Group (STO:247) Has A Fair Chunk Of 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 24SevenOffice Group AB (publ) (STO:247) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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.

See our latest analysis for 24SevenOffice Group

How Much Debt Does 24SevenOffice Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 24SevenOffice Group had kr257.1m of debt, an increase on kr246.2m, over one year. On the flip side, it has kr92.4m in cash leading to net debt of about kr164.7m.

A Look At 24SevenOffice Group's Liabilities

We can see from the most recent balance sheet that 24SevenOffice Group had liabilities of kr123.6m falling due within a year, and liabilities of kr292.9m due beyond that. On the other hand, it had cash of kr92.4m and kr73.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr250.7m.

Since publicly traded 24SevenOffice Group shares are worth a total of kr1.65b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is 24SevenOffice 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.

In the last year 24SevenOffice Group wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to kr353m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, 24SevenOffice Group still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost kr93m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of kr115m into a profit. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for 24SevenOffice Group you should be aware of, and 1 of them is a bit unpleasant.

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.