Is Nanologica (NGM: NICA) a risky investment?

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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” It’s only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We notice that Nanologica AB (released) (NGM: NICA) has debt on its balance sheet. But the real question is whether this debt makes the business risky.

When is debt dangerous?

Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. 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, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution of a business with the ability to reinvest at high rates of return. The first step in examining a business’s debt levels is to consider its cash flow and debt together.

See our latest review for Nanologica

What is Nanologica’s debt?

As you can see below, Nanologica had a debt of kr 31.4million in September 2021, up from kr 34.1million a year earlier. On the other hand, he has 29.7million kr in cash, resulting in net debt of around 1.71million kr.

NGM: NICA Debt to Equity History January 4, 2022

How strong is Nanologica’s balance sheet?

The latest balance sheet data shows that Nanologica had liabilities of NKr 15.3 million due within one year, and KKr 33.4 million liabilities due after that. In return, he had 29.7 million kr in cash and 699.0 kr in receivables due within 12 months. Its liabilities therefore total SEK 18.4 million more than the combination of its cash and short-term receivables.

Considering that the listed Nanologica shares are worth a total of SEK 408.4 million, it seems unlikely that this level of liabilities is a major threat. Having said that, it is clear that we must continue to monitor his record lest it get worse. But in any case, Nanologica has virtually no net debt, so it’s fair to say that she doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Nanologica can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Over the past year, Nanologica has not been profitable on EBIT level, but has managed to increase its turnover by 44%, to 21 million crowns. The shareholders are probably keeping their fingers crossed that this could generate a profit.

Emptor Warning

Despite the growth in turnover, Nanologica has consistently recorded a loss of profit before interest and taxes (EBIT) over the past year. Indeed, he lost 31 million kr in EBIT. 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 48million kr of cash in the past year. In short, it’s a really risky title. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 5 warning signs for Nanologica you should know.

If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.

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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