Does Tobii (STO:TOBII) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Tobii AB (publ) (STO:TOBII) makes use of debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Tobii

What Is Tobii's Debt?

As you can see below, at the end of September 2021, Tobii had kr484.0m of debt, up from kr464.8m a year ago. Click the image for more detail. However, it does have kr271.0m in cash offsetting this, leading to net debt of about kr213.0m.

How Strong Is Tobii's Balance Sheet?

We can see from the most recent balance sheet that Tobii had liabilities of kr938.0m falling due within a year, and liabilities of kr243.0m due beyond that. On the other hand, it had cash of kr271.0m and kr339.0m worth of receivables due within a year. So it has liabilities totalling kr571.0m more than its cash and near-term receivables, combined.

Of course, Tobii has a market capitalization of kr4.22b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Tobii'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 Tobii had a loss before interest and tax, and actually shrunk its revenue by 3.8%, to kr1.4b. That's not what we would hope to see.

Caveat Emptor

Importantly, Tobii had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost kr129m 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 kr123m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. We've identified 2 warning signs with Tobii , and understanding them should be part of your investment process.

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.