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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 Clavister Holding AB (publ.) (STO:CLAV) 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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for Clavister Holding AB (publ.)
What Is Clavister Holding AB (publ.)'s Net Debt?
As you can see below, at the end of June 2019, Clavister Holding AB (publ.) had kr212.2m of debt, up from kr162.1m a year ago. Click the image for more detail. On the flip side, it has kr65.6m in cash leading to net debt of about kr146.6m.
How Healthy Is Clavister Holding AB (publ.)'s Balance Sheet?
According to the last reported balance sheet, Clavister Holding AB (publ.) had liabilities of kr97.1m due within 12 months, and liabilities of kr231.8m due beyond 12 months. Offsetting these obligations, it had cash of kr65.6m as well as receivables valued at kr40.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr223.0m.
This deficit isn't so bad because Clavister Holding AB (publ.) is worth kr461.9m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Clavister Holding AB (publ.) can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Clavister Holding AB (publ.) reported revenue of kr162m, which is a gain of 24%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.