Christian Berner Tech Trade (STO: CBTT B) has a fairly healthy balance sheet

Warren Buffett said: “Volatility is far from synonymous with risk”. 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. Like many other companies Christian Berner Tech Trade AB (editor) (STO: CBTT B) uses debt. But does this debt concern shareholders?

When is debt dangerous?

Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. 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.

Check out our latest analysis for Christian Berner Tech Trade

What is Christian Berner Tech Trade’s debt?

The image below, which you can click for more details, shows that in September 2021 Christian Berner Tech Trade had a debt of 175.0 million kr, compared to 100 million kr in a year. However, since it has a cash reserve of 73.2 million kr, its net debt is less, at around 101.8 million kr.

OM: CBTT B History of debt to equity 23 October 2021

A look at the responsibilities of Christian Berner Tech Trade

The latest balance sheet data shows that Christian Berner Tech Trade had debts of SEK 330.3 million due within one year, and debt of SEK 72.2 million due thereafter. In return, he had 73.2 million kr in cash and 113.5 million kr in receivables due within 12 months. Thus, its liabilities exceed the sum of its cash and (short-term) receivables by 215.9 million crowns.

Christian Berner Tech Trade has a market cap of SEK 669.7 million, so he could most likely raise funds to improve his balance sheet, should the need arise. However, it is always worth taking a close look at your ability to repay your debt.

We use two main ratios to inform us about the levels of debt compared to earnings. The first is net debt divided by earnings before interest, taxes, depreciation, and amortization (EBITDA), while the second is the number of times its profit before interest and taxes (EBIT) covers its interest expense (or its coverage of interest, for short). The advantage of this approach is that we take into account both the absolute amount of debt (with net debt versus EBITDA) and the actual interest charges associated with this debt (with its coverage rate). interests).

Christian Berner Tech Trade’s net debt stands at a very reasonable level of 2.1 times its EBITDA, while its EBIT only covered its interest expense 6.0 times last year. While these numbers don’t worry us, it’s worth noting that the cost of corporate debt does have a real impact. We have seen Christian Berner Tech Trade increase its EBIT by 5.3% over the past twelve months. It’s far from incredible, but it’s a good thing when it comes to paying down debt. There is no doubt that we learn the most about debt from the balance sheet. But in the end, the future profitability of the company will decide whether Christian Berner Tech Trade 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.

Finally, a business needs free cash flow to repay its debts; accounting profits are not enough. It is therefore worth checking to what extent this EBIT is supported by free cash flow. Over the past three years, Christian Berner Tech Trade has recorded free cash flow of 96% of its EBIT, which is higher than what we normally expect. This positions it well to repay debt if it is desirable.

Our point of view

The good news is that Christian Berner Tech Trade’s demonstrated ability to convert EBIT into free cash flow delights us like a fluffy puppy does a toddler. And its EBIT growth rate is also good. All these things considered, it looks like Christian Berner Tech Trade can comfortably manage its current debt levels. On the plus side, this leverage can increase returns to shareholders, but the potential downside is more risk of loss, so it’s worth watching the balance sheet. 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. These risks can be difficult to spot. Every business has them, and we’ve spotted 3 warning signs for Christian Berner Tech Trade 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 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 any of the stocks mentioned.

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