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. ‘ So it can be obvious that you need to consider debt, when you think about how risky a given stock is, because too much debt can sink a business. We notice that Oscar Properties Holding AB (released) (STO: OP) has debt on its balance sheet. But should shareholders be concerned about its use of debt?
When is debt dangerous?
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. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. 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 look at debt levels, we first consider both liquidity and debt levels.
See our latest analysis for Oscar Properties Holding
What is the debt of Oscar Properties Holding?
The image below, which you can click for more details, shows that in June 2021 Oscar Properties Holding was in debt of SEK 3.07 billion, compared to SEK 1.14 billion in a year. However, he also had 122.9 million kr in cash, so his net debt is 2.95 billion kr.
A look at the liabilities of Oscar Properties Holding
Zooming in on the latest balance sheet data, we can see that Oscar Properties Holding had a liability of SEK 1.10 billion due within 12 months and a liability of SEK 2.67 billion beyond. On the other hand, he had cash of 122.9 million kr and 361.9 million kr in receivables due within one year. Thus, its liabilities exceed the sum of its cash and its (short-term) receivables by 3.28 billion crowns.
The deficiency here weighs heavily on the kr1.29b company itself, as if a child struggles under the weight of a huge backpack full of books, his sports equipment, and a trumpet. We therefore believe that shareholders should watch it closely. After all, Oscar Properties Holding would likely need a major recapitalization if it were to pay its creditors today. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is the profits of Oscar Properties Holding that will influence the balance sheet in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
Over the past year, Oscar Properties Holding has recorded a loss before interest and taxes and actually reduced its income by 44%, to 110 million crowns. To be frank, that doesn’t bode well.
While Oscar Properties Holding’s declining revenue is about as comforting as a wet blanket, its earnings before interest and taxes (EBIT) can be said to be even less attractive. To be precise, the EBIT loss amounted to SEK 86 million. The combination of this information with the significant liabilities that we have already mentioned makes us very hesitant about this stock, to say the least. That said, the company may change course. But on the bright side, the company actually generated a statutory profit of Kroner 75 million and free cash flow of Kroner 157 million. One could therefore argue that there is still a chance that he could put things on the right track. 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 off the balance sheet. We have identified 5 warning signs with Oscar Properties Holding (at least 3 which are a bit rude), and understanding them should be part of your investment process.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
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This Simply Wall St article is general in nature. 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 the mentioned stocks.
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