Is SolTech Energy Sweden (STO:SOLT) using too much debt?
David Iben put it well when he said: ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ So it may be obvious that you need to consider debt, when you think about how risky a particular stock is, because too much debt can bring down a company. We can see it SolTech Energy Sweden AB (publ) (STO:SOLT) uses debt in its operations. But is this debt a concern for shareholders?
What risk does debt involve?
Debt is a tool to help businesses grow, but if a business is unable to pay off its lenders, it is at their mercy. Part of capitalism is the process of “creative destruction” where failed companies are ruthlessly liquidated by their bankers. Although not too common, we often see indebted companies permanently diluting shareholders as lenders force them to raise capital at a pitiful price. By replacing dilution, however, debt can be an extremely good tool for companies that need capital to invest in high-yield growth. The first thing to do when considering how much debt a company is using is to look at its cash and debt together.
Check out our latest analysis for SolTech Energy Sweden
What is SolTech Energy Sweden’s debt?
As you can see below, SolTech Energy Sweden had SEK 95.4 million in debt in March 2022, down from SEK 925.4 million a year earlier. But it also has SEK 255.9 million in cash to offset that, meaning it has SEK 160.5 million net.
A look at SolTech Energy Sweden’s debts
The latest balance sheet shows that SolTech Energy Sweden had debts of SEK 368.3 million due within one year and debts of SEK 219.3 million due after that. On the other hand, it had cash of SEK 255.9 million and receivables worth SEK 271.2 million due within a year. So it has liabilities totaling SEK 60.4 million more than its cash and current receivables, combined.
As listed SolTech Energy Sweden shares are worth a total of SEK 2.42 billion, it seems unlikely that this level of debt would be a major threat. That said, it is clear that we should continue to monitor its balance sheet, so that it does not change for the worse. Although it has debt worth noting, SolTech Energy Sweden also has more cash than debt, so we’re pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when analyzing debt. But you can’t look at guilt in total isolation; because SolTech Energy Sweden will need income to pay that debt. So if you’re keen to discover more about its earnings, it might be worth checking out this graph of its long-term earnings trend.
During the past year, SolTech Energy Sweden was not profitable at the EBIT level, but managed to increase its revenue by 105%, to SEK 1.1 billion. So there is no doubt that shareholders are cheering for growth
So how risky is SolTech Energy Sweden?
Although SolTech Energy Sweden had a profit before interest and tax (EBIT) in the last twelve months, it made a statutory profit of SEK 55 million. So taking it at face value, and considering the money, we don’t think it’s very risky in the short term. A positive thing is that SolTech Energy Sweden grows revenues at a fast pace, which makes it easier to sell a growth story and raise capital if needed. But we still think it’s somewhat risky. When analyzing debt levels, the balance sheet is the obvious place to start. But at the end of the day, every business can contain off-balance sheet risks. For example, we have discovered 2 warning signs for SolTech Energy Sweden (1 makes us a little uncomfortable!) that you should be aware of before investing here.
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, don’t hesitate to discover our exclusive list of net growth stocks today.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only by 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 shares and does not take into account your goals or your financial situation. We strive to provide you with long-term focused analysis driven by fundamental data. Note that our analysis may not take into account recent price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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