Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about. 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 Self Storage Group ASA (OB:SSG) does have debt on its balance sheet. But is this debt a concern to shareholders?
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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Self Storage Group
How Much Debt Does Self Storage Group Carry?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 Self Storage Group had kr231.9m of debt, an increase on kr92.3m, over one year. However, it does have kr423.4m in cash offsetting this, leading to net cash of kr191.5m.
A Look At Self Storage Group's Liabilities
The latest balance sheet data shows that Self Storage Group had liabilities of kr129.0m due within a year, and liabilities of kr651.5m falling due after that. Offsetting these obligations, it had cash of kr423.4m as well as receivables valued at kr14.9m due within 12 months. So it has liabilities totalling kr342.2m more than its cash and near-term receivables, combined.
Self Storage Group has a market capitalization of kr1.38b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Self Storage Group also has more cash than debt, so we're pretty confident it can manage its debt safely.
On top of that, Self Storage Group grew its EBIT by 85% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Self Storage Group 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.