Does Empir Group (STO:EMPIR B) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 Empir Group AB (publ) (STO:EMPIR B) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Empir Group

How Much Debt Does Empir Group Carry?

As you can see below, at the end of March 2023, Empir Group had kr104.0m of debt, up from none a year ago. Click the image for more detail. However, it also had kr53.7m in cash, and so its net debt is kr50.3m.

How Strong Is Empir Group's Balance Sheet?

The latest balance sheet data shows that Empir Group had liabilities of kr209.6m due within a year, and liabilities of kr112.4m falling due after that. On the other hand, it had cash of kr53.7m and kr139.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr128.9m.

This deficit casts a shadow over the kr80.8m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Empir Group would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Empir 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 Empir Group wasn't profitable at an EBIT level, but managed to grow its revenue by 366%, to kr78m. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

While we can certainly appreciate Empir Group's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping kr9.2m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through kr7.8m in negative free cash flow over the last year. So suffice it to say we consider the stock to be 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. Be aware that Empir Group is showing 5 warning signs in our investment analysis , and 3 of those are concerning...

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.