Warren Buffett said: “Volatility is far from synonymous with risk”. It is only natural to consider a company’s balance sheet when considering how risky it is, as debt is often involved when a business collapses. Above all, Viking Supply Ships AB (released) (STO: VSSAB B) is in debt. But does this debt worry shareholders?
When is Debt a Problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, debt can be an important tool in businesses, especially capital intensive businesses. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
See our latest review for Viking Supply Ships
What is the net debt of Viking Supply Ships?
You can click on the graph below for historical figures, but it shows that as of September 2021 Viking Supply Ships had a debt of 18.0million kr, an increase from none, year over year. However, his balance sheet shows that he has 34.0 million kr in cash, so he actually has 16.0 million kr in net cash.
How healthy is the balance sheet of Viking supply ships?
Zooming in on the latest balance sheet data, we can see that Viking Supply Ships had a liability of 88.0 million kr due within 12 months and a liability of 5.00 million kr due beyond. On the other hand, he had cash of 34.0 million kr and 25.2 million kr in receivables due within one year. Its liabilities therefore total 33.8 million kr more than the combination of its cash and short-term receivables.
Considering that Viking Supply Ships has a market cap of SEK 530.6 million, it’s hard to believe that these liabilities pose a big threat. Having said that, it is clear that we must continue to monitor his record lest it get worse. While it has some liabilities to note, Viking Supply Ships also has more cash than debt, so we’re pretty confident it can handle its debt safely. The balance sheet is clearly the area to focus on when analyzing debt. But it is the profits of Viking Supply Ships that will influence the way the balance sheet is maintained in the future. So if you want to know more about its profits, it may be worth checking out this long term profit trend chart.
Over the past year, Viking Supply Ships has incurred a loss before interest and taxes and has actually reduced its revenue by 27%, to 282 million crowns. To be frank, that doesn’t bode well.
So how risky are Viking Supply Ships?
By their very nature, businesses that lose money are riskier than those with a long history of profitability. And over the past year, Viking Supply Ships has recorded a loss of earnings before interest and taxes (EBIT), frankly. And in the same period, it recorded a negative free cash outflow of NKr 118 million and a book loss of NKr 136 million. With only 16.0 million crowns on the balance sheet, it looks like it will soon have to raise capital again. Overall, we would say the stock is a bit risky, and we’re generally very cautious until we see positive free cash flow. 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. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for Viking supply ships you should know.
At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.
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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 any stock 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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