Does Nordic LEVEL Group AB (publ.) (STO:LEVEL) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Nordic LEVEL Group AB (publ.) (STO:LEVEL) does use debt in its business. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. 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, 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.

What Is Nordic LEVEL Group AB (publ.)'s Net Debt?

As you can see below, at the end of December 2024, Nordic LEVEL Group AB (publ.) had kr63.3m of debt, up from kr48.2m a year ago. Click the image for more detail. However, it also had kr8.41m in cash, and so its net debt is kr54.9m.

How Strong Is Nordic LEVEL Group AB (publ.)'s Balance Sheet?

We can see from the most recent balance sheet that Nordic LEVEL Group AB (publ.) had liabilities of kr146.6m falling due within a year, and liabilities of kr34.0m due beyond that. On the other hand, it had cash of kr8.41m and kr120.7m worth of receivables due within a year. So its liabilities total kr51.5m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Nordic LEVEL Group AB (publ.) has a market capitalization of kr112.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Nordic LEVEL Group AB (publ.)'s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Nordic LEVEL Group AB (publ.)

In the last year Nordic LEVEL Group AB (publ.) wasn't profitable at an EBIT level, but managed to grow its revenue by 2.5%, to kr371m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Nordic LEVEL Group AB (publ.) produced an earnings before interest and tax (EBIT) loss. Indeed, it lost kr8.0m 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. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of kr6.0m into a profit. So we do think this stock is quite 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. We've identified 1 warning sign with Nordic LEVEL Group AB (publ.) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.