Does Fingerprint Cards (STO:FING B) Have A Healthy Balance Sheet?

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. Importantly, Fingerprint Cards AB (publ) (STO:FING B) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Fingerprint Cards

What Is Fingerprint Cards's Debt?

As you can see below, Fingerprint Cards had kr100.0m of debt at September 2023, down from kr293.2m a year prior. However, it does have kr197.9m in cash offsetting this, leading to net cash of kr97.9m.

How Healthy Is Fingerprint Cards' Balance Sheet?

The latest balance sheet data shows that Fingerprint Cards had liabilities of kr256.7m due within a year, and liabilities of kr116.8m falling due after that. Offsetting this, it had kr197.9m in cash and kr100.5m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr75.1m.

Since publicly traded Fingerprint Cards shares are worth a total of kr496.8m, 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. Despite its noteworthy liabilities, Fingerprint Cards 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 it is future earnings, more than anything, that will determine Fingerprint Cards's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Fingerprint Cards had a loss before interest and tax, and actually shrunk its revenue by 32%, to kr695m. To be frank that doesn't bode well.

So How Risky Is Fingerprint Cards?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Fingerprint Cards had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through kr236m of cash and made a loss of kr720m. With only kr97.9m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Fingerprint Cards (1 makes us a bit uncomfortable) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.