We Think Tobii (STO:TOBII) Has A Fair Chunk Of Debt

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.' 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 Tobii AB (publ) (STO:TOBII) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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.

View our latest analysis for Tobii

How Much Debt Does Tobii Carry?

As you can see below, at the end of September 2020, Tobii had kr464.8m of debt, up from kr293.7m a year ago. Click the image for more detail. However, it also had kr297.7m in cash, and so its net debt is kr167.1m.

How Healthy Is Tobii's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tobii had liabilities of kr501.0m due within 12 months and liabilities of kr648.9m due beyond that. Offsetting this, it had kr297.7m in cash and kr255.0m in receivables that were due within 12 months. So its liabilities total kr597.2m more than the combination of its cash and short-term receivables.

Of course, Tobii has a market capitalization of kr5.44b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 wasn't profitable at an EBIT level, but managed to grow its revenue by 2.0%, to kr1.5b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Tobii had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at kr121m. 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. Another cause for caution is that is bled kr75m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. For riskier companies like Tobii I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. 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.
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