Enea (STO:ENEA) Is Making Moderate Use Of Debt

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.' 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 Enea AB (publ) (STO:ENEA) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Enea

What Is Enea's Net Debt?

The image below, which you can click on for greater detail, shows that Enea had debt of kr461.0m at the end of March 2024, a reduction from kr521.0m over a year. However, it also had kr328.1m in cash, and so its net debt is kr132.9m.

How Strong Is Enea's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Enea had liabilities of kr332.2m due within 12 months and liabilities of kr587.7m due beyond that. Offsetting these obligations, it had cash of kr328.1m as well as receivables valued at kr389.5m due within 12 months. So its liabilities total kr202.3m more than the combination of its cash and short-term receivables.

Given Enea has a market capitalization of kr1.64b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Enea can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Enea had a loss before interest and tax, and actually shrunk its revenue by 10%, to kr865m. That's not what we would hope to see.

Caveat Emptor

Not only did Enea's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost kr22m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 kr550m into a profit. In the meantime, we consider the stock very risky. For riskier companies like Enea I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.