Is Viking Supply Ships (STO:VSSAB B) Using Debt Sensibly?

Warren Buffett famously said, '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. Importantly, Viking Supply Ships AB (publ) (STO:VSSAB B) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

See our latest analysis for Viking Supply Ships

What Is Viking Supply Ships's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Viking Supply Ships had kr18.0m of debt, an increase on none, over one year. However, its balance sheet shows it holds kr34.0m in cash, so it actually has kr16.0m net cash.

How Healthy Is Viking Supply Ships' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Viking Supply Ships had liabilities of kr88.0m due within 12 months and liabilities of kr5.00m due beyond that. On the other hand, it had cash of kr34.0m and kr25.2m worth of receivables due within a year. So its liabilities total kr33.8m more than the combination of its cash and short-term receivables.

Given Viking Supply Ships has a market capitalization of kr530.6m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Viking Supply Ships also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Viking Supply Ships's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Viking Supply Ships had a loss before interest and tax, and actually shrunk its revenue by 27%, to kr282m. To be frank that doesn't bode well.

So How Risky Is Viking Supply Ships?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Viking Supply Ships had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of kr118m and booked a kr136m accounting loss. With only kr16.0m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Viking Supply Ships you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.