Binero Group (STO:BINERO) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Binero Group AB (publ) (STO:BINERO) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Binero Group

What Is Binero Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Binero Group had kr25.5m of debt, an increase on none, over one year. However, its balance sheet shows it holds kr28.4m in cash, so it actually has kr2.90m net cash.

How Healthy Is Binero Group's Balance Sheet?

The latest balance sheet data shows that Binero Group had liabilities of kr52.8m due within a year, and liabilities of kr34.2m falling due after that. Offsetting these obligations, it had cash of kr28.4m as well as receivables valued at kr24.4m due within 12 months. So its liabilities total kr34.2m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Binero Group has a market capitalization of kr126.1m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Binero Group also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Binero 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 Binero Group wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to kr53m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Binero Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Binero Group lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through kr13m of cash and made a loss of kr19m. With only kr2.90m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. We've identified 5 warning signs with Binero Group (at least 3 which are concerning) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.