Greater Than (STO:GREAT) Is Using Debt Safely

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Greater Than AB (STO:GREAT) 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?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Greater Than

What Is Greater Than's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Greater Than had kr22.2m of debt, an increase on kr4.12m, over one year. However, its balance sheet shows it holds kr46.4m in cash, so it actually has kr24.2m net cash.

A Look At Greater Than's Liabilities

We can see from the most recent balance sheet that Greater Than had liabilities of kr12.8m falling due within a year, and liabilities of kr21.7m due beyond that. Offsetting this, it had kr46.4m in cash and kr23.0m in receivables that were due within 12 months. So it can boast kr34.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Greater Than could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Greater Than boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Greater Than will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Greater Than reported revenue of kr49m, which is a gain of 77%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Greater Than?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Greater Than lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of kr16m and booked a kr555k accounting loss. But the saving grace is the kr24.2m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Greater Than may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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 Greater Than is showing 5 warning signs in our investment analysis , and 2 of those are significant...

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.