David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We note that Samtrygg Group AB (publisher) (NGM: SAMT B) has debt on its balance sheet. But the more important question is: what risk does this debt create?
Why is debt risky?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.
Check out our latest analysis for Samtrygg Group
What is Samtrygg Group’s net debt?
You can click on the graph below for historical figures, but it shows that in June 2022 Samtrygg Group had a debt of 24.2 million kr, an increase of 2.75 million kr, year on year . On the other hand, he has 9.72 million kr in cash, resulting in a net debt of around 14.5 million kr.
A look at Samtrygg Group liabilities
According to the latest published balance sheet, Samtrygg Group had liabilities of 30.9 million kr due within 12 months and liabilities of 971,000 kr due beyond 12 months. On the other hand, he had a cash position of 9.72 million kr and 3.99 million kr of receivables at less than one year. Thus, its liabilities outweigh the sum of its cash and receivables (short term) of kr 18.1 million.
Samtrygg Group has a market capitalization of 40.8 million kr, so it could very likely raise funds to improve its balance sheet, should the need arise. But we definitely want to keep our eyes peeled for indications that its debt is too risky. There is no doubt that we learn the most about debt from the balance sheet. But it is the profits of the Samtrygg Group that will influence the balance sheet in the future. So, if you want to know more about its earnings, it might be worth checking out this graph of its long-term trend.
Last year, the Samtrygg Group was not profitable in terms of EBIT, but managed to increase its turnover by 31%, to 236 million kr. The shareholders probably have their fingers crossed that she can make a profit.
Even though the Samtrygg Group has managed to grow its turnover quite skillfully, the harsh truth is that it is losing money on the EBIT line. To be precise, the EBIT loss amounted to 1.9 million kr. When we look at this and recall the liabilities on its balance sheet, versus cash, it seems unwise to us that the company has liabilities. So we think its balance sheet is a little stretched, but not beyond repair. We would feel better if he turned his 2.0 million kr year-over-year loss into profit. In the meantime, we consider the stock to be very risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. For example, we have identified 3 warning signs for Samtrygg Group of which you should be aware.
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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