Is niiio financial group (ETR: NIIN) using debt in a risky way?

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David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Above all, niio finance group AG (ETR:NIIN) is in debt. But does this debt worry shareholders?

When is debt a problem?

Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. When we think about a company’s use of debt, we first look at cash and debt together.

Our analysis indicates that The NIIN is potentially undervalued!

What is niiio financial group’s net debt?

The graph below, which you can click on for more details, shows that the niiio financial group had €5.30m in debt in June 2022; about the same as the previous year. However, he has €6.49m in cash which offsets this, leading to a net cash of €1.18m.

XTRA: NIIN Debt to Equity November 5, 2022

A look at the liabilities of the niiio financial group

According to the last published balance sheet, the niiio financial group had liabilities of 5.38 million euros maturing within 12 months and liabilities of 7.48 million euros maturing beyond 12 months. In return, it had €6.49 million in cash and €557.6 thousand in receivables due within 12 months. Its liabilities therefore total €5.81 million more than the combination of its cash and short-term receivables.

This shortfall is not that bad as the niiio financial group is worth 27.8 million euros and therefore could probably raise enough capital to shore up its balance sheet, should the need arise. But we definitely want to keep our eyes peeled for indications that its debt is too risky. Despite its notable liabilities, the niiio financial group has net cash, so it is fair to say that it is not heavily indebted! The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine niiio financial group’s ability to maintain a healthy balance sheet in the future. So if you want to see what the pros think, you might find this free analyst earnings forecast report Be interesting.

Over 12 months, niiio finance group achieved a turnover of €6.2 million, a gain of 111%, although it did not record a profit before interest and taxes. Its fairly obvious shareholders therefore hope for more growth!

So how risky is niiio financial group?

Statistically speaking, businesses that lose money are riskier than those that make money. And we note that the niiio financial group has recorded a loss of earnings before interest and taxes (EBIT) over the past year. And over the same period, it recorded a negative free cash outflow of 5.6 million euros and recorded an accounting loss of 3.5 million euros. Given that it only has net cash of 1.18 million euros, the company may need to raise more capital if it does not break even soon. The good news for shareholders is that the niiio financial group has skyrocketing revenue growth, so there’s a very good chance it can increase 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. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example – the niiio financial group has 4 warning signs we think you should know.

Of course, if you are the type of investor who prefers to buy stocks without going into debt, do not hesitate to discover our exclusive list of net cash growth stockstoday.

Valuation is complex, but we help make it simple.

Find out if niiio financial group is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

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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