Is PowerCell Sweden (STO:PCELL) using debt in a risky way?

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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. We note that PowerCell Sweden AB (publisher) (STO:PCELL) has debt on its balance sheet. But does this debt worry shareholders?

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. If things go really bad, lenders can take over the business. 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. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth 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 PowerCell Sweden

What is PowerCell Sweden’s debt?

The graph below, which you can click on for more details, shows that PowerCell Sweden had a debt of 30.5 million kr in March 2022; about the same as the previous year. But on the other hand, he also has 290.3 million kr in cash, resulting in a net cash position of 259.7 million kr.

OM: PCELL Debt to Equity History June 2, 2022

How healthy is PowerCell Sweden’s balance sheet?

We can see from the most recent balance sheet that PowerCell Sweden had liabilities of 74.6 million kr due in one year and liabilities of 59.4 million kr due beyond. In compensation for these obligations, it had cash of 290.3 million kr as well as receivables valued at 72.5 million kr and payable within 12 months. It can therefore boast of having 228.8 million kr more liquid assets than total Passives.

This short-term liquidity is a sign that PowerCell Sweden could probably repay its debt easily, as its balance sheet is far from stretched. Simply put, the fact that PowerCell Sweden has more cash than debt is arguably a good indication that it can safely manage its debt. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether PowerCell Sweden can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Over 12 months, PowerCell Sweden reported revenue of kr 160 million, a gain of 50%, although it reported no earnings before interest and tax. The shareholders probably have their fingers crossed that she can make a profit.

So how risky is PowerCell Sweden?

By their very nature, companies that lose money are riskier than those with a long history of profitability. And the fact is that over the past twelve months, PowerCell Sweden has been losing money in earnings before interest and tax (EBIT). Indeed, at that time he burned 113 million kr of cash and suffered a loss of 83 million kr. With only 259.7 million kr on the balance sheet, it looks like he will soon have to raise capital again. With very solid revenue growth over the past year, PowerCell Sweden could be on the road to profitability. By investing before these profits, shareholders take on more risk in the hope of greater rewards. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for PowerCell Sweden you should know.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

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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