Here’s Why Terranet (STO:TERRNT B) Can Manage Its Debt Despite Losing Money


Warren Buffett said: “Volatility is far from synonymous with risk. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. We can see that Terranet AB (STO: TERRNT B) uses debt in its business. But the real question is whether this debt makes the business risky.

Why is debt risky?

Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. If things go really bad, lenders can take over the business. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. When we think about a company’s use of debt, we first look at cash and debt together.

Check out our latest analysis for Terranet

What is Terranet’s debt?

As you can see below, at the end of September 2021, Terranet had 34.0 million kr in debt, compared to 5.96 million kr a year ago. Click on the image for more details. However, he has 73.0 million kr in cash to offset this, resulting in a net cash of 39.0 million kr.

OM:TERRNT B Debt to Equity Historical February 15, 2022

How strong is Terranet’s balance sheet?

We can see from the most recent balance sheet that Terranet had liabilities of 6.77 million kr due in one year, and liabilities of 35.6 million kr due beyond. In return, it had 73.0 million kr in cash and 1.22 million kr in receivables due within 12 months. Thus, he can boast of having 31.9 million kr more in liquid assets than total Passives.

This surplus suggests that Terranet has a conservative balance sheet, and could probably eliminate its debt without too much difficulty. In short, Terranet has a net cash position, so it’s fair to say that it doesn’t have a lot of debt! There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in total isolation; since Terranet will need revenue to repay this debt. So, if you want to know more about its earnings, it may be worth checking out this graph of its long-term trend.

Last year, Terranet was not profitable in terms of EBIT, but managed to increase its turnover by 216%, to 11 million kr. That’s practically the hole-in-one of revenue growth!

So how risky is Terranet?

By their very nature, companies that lose money are riskier than those with a long history of profitability. And the fact is that over the past twelve months, Terranet has been losing money in earnings before interest and taxes (EBIT). And during the same period, it recorded a negative free cash outflow of 49 million kr and recorded an accounting loss of 37 million kr. Since it only has net cash of kr 39.0 million, the company may need to raise more capital if it does not break even soon. The good news for shareholders is that Terranet has skyrocketing revenue growth, so there’s a very good chance it can grow its free cash flow in the years to come. High-growth, for-profit businesses may well be risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. To do this, you need to find out about the 4 warning signs we spotted some with Terranet (including 1 which is a bit unpleasant).

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.


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