Consumer Durables News

Is Northbaze Group (STO:NBZ) Using Too Much Debt?

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The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, makes no bones about it when he says ‘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. We note that Northbaze Group AB (publ) (STO:NBZ) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company’s debt levels is to consider its cash and debt together.

Check out the opportunities and risks within the SE Consumer Durables industry.

What Is Northbaze Group’s Debt?

As you can see below, at the end of June 2022, Northbaze Group had kr34.8m of debt, up from kr17.5m a year ago. Click the image for more detail. However, because it has a cash reserve of kr16.3m, its net debt is less, at about kr18.6m.

debt-equity-history-analysis
OM:NBZ Debt to Equity History November 24th 2022

How Strong Is Northbaze Group’s Balance Sheet?

According to the last reported balance sheet, Northbaze Group had liabilities of kr59.7m due within 12 months, and liabilities of kr9.11m due beyond 12 months. On the other hand, it had cash of kr16.3m and kr29.9m worth of receivables due within a year. So it has liabilities totalling kr22.7m more than its cash and near-term receivables, combined.

This deficit isn’t so bad because Northbaze Group is worth kr82.8m, and thus could probably raise enough capital to shore up 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. There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Northbaze Group’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Northbaze Group reported revenue of kr148m, which is a gain of 3.5%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Northbaze Group produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at kr2.1m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled kr12m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Northbaze Group is showing 3 warning signs in our investment analysis , you should know about…

When all is said and done, sometimes its easier to focus on companies that don’t even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Valuation is complex, but we’re helping make it simple.

Find out whether Northbaze Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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