Warren Buffett famously said, '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. Importantly, Oscar Properties Holding AB (publ) (STO:OP) does carry debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Oscar Properties Holding
How Much Debt Does Oscar Properties Holding Carry?
The image below, which you can click on for greater detail, shows that Oscar Properties Holding had debt of kr1.45b at the end of June 2019, a reduction from kr2.19b over a year. On the flip side, it has kr252.5m in cash leading to net debt of about kr1.20b.
How Strong Is Oscar Properties Holding's Balance Sheet?
The latest balance sheet data shows that Oscar Properties Holding had liabilities of kr1.20b due within a year, and liabilities of kr1.13b falling due after that. On the other hand, it had cash of kr252.5m and kr356.8m worth of receivables due within a year. So its liabilities total kr1.72b more than the combination of its cash and short-term receivables.
The deficiency here weighs heavily on the kr197.9m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet." So we'd watch its balance sheet closely, without a doubt At the end of the day, Oscar Properties Holding would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Oscar Properties Holding'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.
Over 12 months, Oscar Properties Holding made a loss at the EBIT level, and saw its revenue drop to kr1.4b, which is a fall of 41%. That makes us nervous, to say the least.