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David Iben put it well when he said, “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Above all, Eyeonid Group AB (released) (NGM: EOID) carries the debt. But the real question is whether this debt makes the business risky.
When Is Debt a Problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, debt can be an important tool in businesses, especially capital intensive businesses. When we think of a business’s use of debt, we first look at cash flow and debt together.
Discover our latest analysis for Eyeonid Group
How much debt does the Eyeonid group have?
You can click on the graph below for the historical figures, but it shows that as of September 2021 Eyeonid Group had a debt of 23.8 million kr, an increase from none, year over year. On the other hand, it has a cash position of 9.64 million crowns, resulting in net debt of around 14.1 million crowns.
How strong is Eyeonid Group’s balance sheet?
We can see from the most recent balance sheet that Eyeonid Group had a liability of 21.8 million kr due within one year and a liability of 23.8 million kr due beyond. In return, he had 9.64 million kr in cash and 2.16 million kr in receivables due within 12 months. It therefore has liabilities totaling 33.7 million kr more than its combined cash and short-term receivables.
This deficit is not that serious as Eyeonid Group is worth 104.0 Mkr, and could therefore probably raise enough capital to consolidate its balance sheet, if the need arises. But it is clear that it is absolutely necessary to take a close look at whether it can manage its debt without dilution. When analyzing debt levels, the balance sheet is the obvious starting point. But you can’t look at debt in isolation; since Eyeonid Group will need income to repay this debt. So if you want to know more about its profits, it might be worth checking out this long term profit trend chart.
Over the past year, Eyeonid Group was not profitable on EBIT level, but managed to increase its turnover by 120%, to 25 million crowns. Its fairly obvious shareholders are therefore hoping for more growth!
Emptor Warning
Even though Eyeonid Group has managed to grow its revenue quite adroitly, the hard truth is that it is losing money on the EBIT line. Indeed, he lost a very considerable amount of 38 million kr in EBIT level. When we look at this and recall the liabilities on its balance sheet, versus the cash flow, it seems unwise to us that the company has debt. We therefore believe that its record is a bit strained, but not irreparable. However, it doesn’t help that he has burned 37 million kr of cash in the past year. Suffice it to say, then, that we consider the stock to be very risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. To this end, you should inquire about the 6 warning signs we spotted with Eyeonid Group (including 3 which are a bit disturbing).
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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