In This Article:
Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. As with many other companies Svenska Aerogel Holding AB (publ) (STO:AERO) makes use of debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Svenska Aerogel Holding
What Is Svenska Aerogel Holding's Net Debt?
As you can see below, at the end of June 2019, Svenska Aerogel Holding had kr14.0m of debt, up from kr5.61m a year ago. Click the image for more detail. However, it does have kr22.6m in cash offsetting this, leading to net cash of kr8.65m.
A Look At Svenska Aerogel Holding's Liabilities
Zooming in on the latest balance sheet data, we can see that Svenska Aerogel Holding had liabilities of kr11.0m due within 12 months and liabilities of kr16.1m due beyond that. Offsetting this, it had kr22.6m in cash and kr4.14m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.
Having regard to Svenska Aerogel Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the kr147.4m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Svenska Aerogel Holding boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Svenska Aerogel Holding 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.