Here's Why Smart Eye (STO:SEYE) Can Afford Some 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.' 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. Importantly, Smart Eye AB (publ) (STO:SEYE) does carry debt. But is this debt a concern to shareholders?

Our free stock report includes 3 warning signs investors should be aware of before investing in Smart Eye. Read for free now.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

What Is Smart Eye's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Smart Eye had kr49.5m of debt, an increase on kr8.98m, over one year. On the flip side, it has kr22.4m in cash leading to net debt of about kr27.1m.

How Healthy Is Smart Eye's Balance Sheet?

The latest balance sheet data shows that Smart Eye had liabilities of kr183.1m due within a year, and liabilities of kr141.1m falling due after that. Offsetting these obligations, it had cash of kr22.4m as well as receivables valued at kr140.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr161.4m.

Of course, Smart Eye has a market capitalization of kr2.02b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, Smart Eye has virtually no net debt, so it's fair to say it does not have a heavy debt load! 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 Smart Eye can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for Smart Eye

In the last year Smart Eye wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to kr355m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Smart Eye had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable kr250m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through kr221m of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with Smart Eye (including 1 which can't be ignored) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.