In This Article:
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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, Moberg Pharma AB (publ) (STO:MOB) does carry debt. But should shareholders be worried about its use of debt?
What Risk Does Debt Bring?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Moberg Pharma
How Much Debt Does Moberg Pharma Carry?
As you can see below, Moberg Pharma had kr23.6m of debt at June 2019, down from kr593.1m a year prior. However, it does have kr919.1m in cash offsetting this, leading to net cash of kr895.5m.
A Look At Moberg Pharma's Liabilities
We can see from the most recent balance sheet that Moberg Pharma had liabilities of kr56.9m falling due within a year, and liabilities of kr32.0m due beyond that. On the other hand, it had cash of kr919.1m and kr13.0m worth of receivables due within a year. So it actually has kr843.2m more liquid assets than total liabilities.
This luscious liquidity implies that Moberg Pharma's balance sheet is sturdy like a giant sequoia tree. On this basis we think its balance sheet is strong like a sleek panther or even a proud lion. Simply put, the fact that Moberg Pharma has more cash than debt is arguably a good indication that it can manage its debt safely.
Notably, Moberg Pharma's EBIT launched higher than Elon Musk, gaining a whopping 991% on last year. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Moberg Pharma'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.