Is W5 Solutions (STO:W5) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that W5 Solutions AB (publ) (STO:W5) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is W5 Solutions's Net Debt?

You can click the graphic below for the historical numbers, but it shows that W5 Solutions had kr35.0m of debt in September 2025, down from kr63.4m, one year before. But on the other hand it also has kr52.9m in cash, leading to a kr17.9m net cash position.

How Healthy Is W5 Solutions' Balance Sheet?

We can see from the most recent balance sheet that W5 Solutions had liabilities of kr167.1m falling due within a year, and liabilities of kr91.9m due beyond that. Offsetting this, it had kr52.9m in cash and kr135.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr70.2m.

Of course, W5 Solutions has a market capitalization of kr992.1m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, W5 Solutions boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine W5 Solutions's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for W5 Solutions

In the last year W5 Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 5.7%, to kr408m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is W5 Solutions?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months W5 Solutions lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of kr39m and booked a kr18m accounting loss. However, it has net cash of kr17.9m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that W5 Solutions is showing 1 warning sign in our investment analysis , you should know about...

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.