Is AB Electrolux (STO:ELUX B) taking on too much debt?

Warren Buffett famously said, “Volatility is far from synonymous with risk.” So it seems that smart people know that debt – which usually accompanies bankruptcies – is a very important factor when assessing a company’s risk. We take note of that AB Electrolux (publ) (STO:ELUX B) has debt on its balance sheet. But the more important question is: How much risk does this debt pose?

When is debt dangerous?

Debt and other liabilities become risky for a company when it cannot easily meet those obligations, either through free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While this isn’t all that common, we often see indebted companies permanently diluting their shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When we think about a company’s use of debt, we first consider cash and debt together.

Check out our latest analysis for AB Electrolux

How much debt does AB Electrolux have?

The chart below, which you can click on for more details, shows that AB Electrolux had debt of 40.8 billion crowns as of September 2024; about the same as the year before. However, this is offset by a cash balance of 16.4 billion crowns, which leads to net debt of around 24.5 billion crowns.

How healthy is AB Electrolux’s balance sheet?

According to the last reported balance sheet, AB Electrolux had liabilities of kr71.7b due within 12 months, and liabilities of kr43.9b due beyond 12 months. Offsetting this, it had cash of KR16.4b and receivables worth KR23.3b due within 12 months. So it has liabilities totaling kr75.9b more than its cash and short-term receivables combined.

This deficit casts a shadow over the 22.0 billion kr company, like a colossus towering over mere mortals. So we would no doubt keep a close eye on its balance sheet. Ultimately, AB Electrolux would likely need a major recapitalization if its creditors wanted repayment. When analyzing debt levels, the balance sheet is the obvious place to start. But it is future earnings that will determine whether AB Electrolux can maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Last year, AB Electrolux’s revenue was fairly flat and its EBIT was negative. That’s hardly impressive, but it’s not bad either.

Precautionary measure

Importantly, AB Electrolux recorded earnings before interest and tax (EBIT) last year. The EBIT loss was a whopping 3.3 billion crowns. Combining this information with the significant liabilities we’ve already discussed makes us very hesitant about this stock, to say the least. Of course, with a bit of luck and good execution, it can improve its situation. However, we think this is unlikely as liquid assets are tight and 221 million crowns were burned last year. That’s why we think this stock is risky, like walking through a dirty dog ​​park with a mask on. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – quite the opposite. Case in point: We discovered it 1 warning sign for AB Electrolux You should be aware of that.

If you’re the kind of investor who prefers buying stocks without the burden of debt, then don’t hesitate to explore our exclusive list of net cash growth stocks today.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.