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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, LightLab Sweden AB (STO:LLSW B) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for LightLab Sweden

What Is LightLab Sweden's Debt?

As you can see below, LightLab Sweden had kr3.33m of debt at March 2019, down from kr3.94m a year prior. However, it does have kr15.7m in cash offsetting this, leading to net cash of kr12.4m.

How Strong Is LightLab Sweden's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that LightLab Sweden had liabilities of kr5.26m due within 12 months and liabilities of kr3.33m due beyond that. Offsetting these obligations, it had cash of kr15.7m as well as receivables valued at kr2.22m due within 12 months. So it can boast kr9.37m more liquid assets than total liabilities.

This short term liquidity is a sign that LightLab Sweden could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that LightLab Sweden has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is LightLab Sweden's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year LightLab Sweden managed to grow its revenue by 20%, to kr15m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is LightLab Sweden?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year LightLab Sweden had negative earnings before interest and tax (EBIT), truth be told. Indeed, in that time it burnt through kr36m of cash and made a loss of kr26m. Given it only has net cash of kr16m, the company may need to raise more capital if it doesn't reach break-even soon. LightLab Sweden's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. For riskier companies like LightLab Sweden I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.