Is Nilsson Special Vehicles (STO:NILS) Using Too Much Debt?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Nilsson Special Vehicles AB (publ) (STO:NILS) does use debt in its business. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Nilsson Special Vehicles
What Is Nilsson Special Vehicles's Debt?
As you can see below, at the end of March 2019, Nilsson Special Vehicles had kr7.93m of debt, up from none a year ago. Click the image for more detail. However, because it has a cash reserve of kr1.66m, its net debt is less, at about kr6.28m.
How Healthy Is Nilsson Special Vehicles's Balance Sheet?
We can see from the most recent balance sheet that Nilsson Special Vehicles had liabilities of kr42.6m falling due within a year, and liabilities of kr22.0m due beyond that. On the other hand, it had cash of kr1.66m and kr33.2m worth of receivables due within a year. So it has liabilities totalling kr29.7m more than its cash and near-term receivables, combined.
This is a mountain of leverage relative to its market capitalization of kr36.1m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Nilsson Special Vehicles's earnings that will influence how the balance sheet holds up in the future. 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.
Over 12 months, Nilsson Special Vehicles reported revenue of kr215m, which is a gain of 15%. 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 Nilsson Special Vehicles produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping kr15m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 kr1.8m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. For riskier companies like Nilsson Special Vehicles 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.
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