Crunchfish (STO: CFISH) has considerable debt
Warren Buffett said: “Volatility is far from synonymous with risk”. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Like many other companies Crunchfish AB (pub) (STO: CFISH) uses debt. But the most important question is: what risk does this debt create?
When is Debt a Problem?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, many companies use debt to finance their growth without negative consequences. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
Check out our latest review for Crunchfish
What is Crunchfish’s net debt?
You can click on the graph below for the historical figures, but it shows that as of September 2021, Crunchfish was in debt of 25.0million kr, an increase from none, over one year. However, given that it has a cash reserve of SEK 6.03 million, its net debt is less, at around SEK 19.0 million.
A look at the responsibilities of Crunchfish
According to balance sheet data, Crunchfish had a liability of SEK 33.6 million due within 12 months, but no longer term liabilities. In compensation for these obligations, he had cash of SEK 6.03 million as well as receivables valued at SEK 2.14 million maturing within 12 months. It therefore has liabilities totaling SEK 25.4 million more than its combined cash and short-term receivables.
Considering that listed Crunchfish shares are worth a total of SEK 454.6 million, it seems unlikely that this level of liabilities is a major threat. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. When analyzing debt levels, the balance sheet is the obvious place to start. But you can’t look at debt in isolation; since Crunchfish will need income to pay off this debt. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
Over 12 months, Crunchfish has seen its income remain fairly stable and has not reported any positive earnings before interest and taxes. While that doesn’t impress much, it’s not too bad either.
Over the past twelve months, Crunchfish has recorded a loss of profit before interest and taxes (EBIT). Indeed, he lost 26 million kr in EBIT. When we look at this and recall the liabilities on its balance sheet, versus the cash flow, it seems unwise to us that the company has debt. We therefore believe that its record is a bit strained, but not irreparable. However, it doesn’t help that he spent 32 million kr in cash in the past year. In short, it’s a really risky title. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. To this end, you should inquire about the 6 warning signs we spotted some Crunchfish (including 2 which are a bit disturbing).
At the end of the day, it’s often best to focus on businesses that don’t have net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.
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