Is Nordic LEVEL Group AB (publ.) (STO:LEVEL) A Risky Investment?

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 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 Nordic LEVEL Group AB (publ.) (STO:LEVEL) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

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

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

The image below, which you can click on for greater detail, shows that at September 2021 Nordic LEVEL Group AB (publ.) had debt of kr46.6m, up from kr26.3m in one year. However, it does have kr18.2m in cash offsetting this, leading to net debt of about kr28.3m.

A Look At Nordic LEVEL Group AB (publ.)'s Liabilities

Zooming in on the latest balance sheet data, we can see that Nordic LEVEL Group AB (publ.) had liabilities of kr137.0m due within 12 months and liabilities of kr7.63m due beyond that. Offsetting these obligations, it had cash of kr18.2m as well as receivables valued at kr77.9m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr48.5m.

While this might seem like a lot, it is not so bad since Nordic LEVEL Group AB (publ.) has a market capitalization of kr161.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Nordic LEVEL Group AB (publ.) can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Nordic LEVEL Group AB (publ.) wasn't profitable at an EBIT level, but managed to grow its revenue by 98%, to kr183m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

While we can certainly appreciate Nordic LEVEL Group AB (publ.)'s revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost kr10m 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. However, it doesn't help that it burned through kr65m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Nordic LEVEL Group AB (publ.) is showing 4 warning signs in our investment analysis , and 2 of those are a bit unpleasant...

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.