Nordic LEVEL Group AB (publ.) (STO:LEVEL) Is Making Moderate Use Of Debt

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.' 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, Nordic LEVEL Group AB (publ.) (STO:LEVEL) does carry debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

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

How Much Debt Does Nordic LEVEL Group AB (publ.) Carry?

You can click the graphic below for the historical numbers, but it shows that Nordic LEVEL Group AB (publ.) had kr72.9m of debt in June 2024, down from kr113.2m, one year before. However, it does have kr15.6m in cash offsetting this, leading to net debt of about kr57.3m.

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 kr147.6m falling due within a year, and liabilities of kr41.3m due beyond that. On the other hand, it had cash of kr15.6m and kr119.2m worth of receivables due within a year. So it has liabilities totalling kr54.1m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Nordic LEVEL Group AB (publ.) is worth kr145.2m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

In the last year Nordic LEVEL Group AB (publ.) wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to kr372m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Nordic LEVEL Group AB (publ.) had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost kr13m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through kr45m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Nordic LEVEL Group AB (publ.) (of which 1 doesn't sit too well with us!) you should know about.

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.