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. Above all, Binero Group AB (publisher) (STO: BINERO) is in debt. But the real question is whether this debt makes the business risky.
What risk does debt carry?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. 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. When we look at debt levels, we first consider cash and debt levels, together.
Check out our latest analysis for Binero Group
How much debt does Binero Group carry?
As you can see below, at the end of March 2022, Binero Group had 23.7 million kr in debt, compared to none a year ago. Click on the image for more details. On the other hand, he has 20.1 million kr in cash, resulting in a net debt of around 3.60 million kr.
How healthy is Binero Group’s balance sheet?
According to the latest published balance sheet, Binero Group had liabilities of kr 50.4 million maturing within 12 months and liabilities of kr 28.8 million maturing beyond 12 months. As compensation for these obligations, it had liquid assets of 20.1 million kr as well as receivables valued at 23.2 million kr and payable within 12 months. It therefore has liabilities totaling kr 35.9 million more than its cash and short-term receivables, combined.
This shortfall is not that bad as the Binero Group is worth 126.1 million kr, and therefore could probably raise enough capital to shore up its balance sheet, should the need arise. However, it is always worth taking a close look at its ability to repay debt. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future earnings, more than anything, that will determine Binero Group’s ability to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over 12 months, Binero Group recorded revenue of kr68 million, a gain of 49%, although it reported no earnings before interest and tax. With a little luck, the company will be able to progress towards profitability.
Caveat Emptor
Despite the growth in turnover, the Binero Group still recorded a loss of earnings before interest and taxes (EBIT) over the past year. Indeed, it lost a very considerable 18 million kr in EBIT. 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. Quite frankly, we think the track record falls short, although it could improve over time. However, it doesn’t help that he burned 19 million kr in cash in the last year. So suffice it to say that we consider the stock to be very risky. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example Binero Group has 4 warning signs (and 3 that can’t be ignored) that we think you should know about.
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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