David Iben put it well when he declared, ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ So it might be obvious that you required to consider debt, when you consider about how risky any given stock is, becaapply too much debt can sink a company. As with many other companies Alligo AB (publ) (STO:ALLIGO B) builds apply of debt. But should shareholders be worried about its apply of debt?
Why Does Debt Bring Risk?
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. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to receive debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we consider about a company’s apply of debt, we first view at cash and debt toreceiveher.
What Is Alligo’s Net Debt?
You can click the graphic below for the historical numbers, but it displays that as of September 2025 Alligo had kr2.41b of debt, an increase on kr2.11b, over one year. However, becaapply it has a cash reserve of kr290.0m, its net debt is less, at about kr2.12b.
A Look At Alligo’s Liabilities
Zooming in on the latest balance sheet data, we can see that Alligo had liabilities of kr2.16b due within 12 months and liabilities of kr3.79b due beyond that. Offsetting this, it had kr290.0m in cash and kr1.59b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr4.06b.
This deficit is considerable relative to its market capitalization of kr6.76b, so it does suggest shareholders should keep an eye on Alligo’s apply of debt. Should its lconcludeers demand that it shore up the balance sheet, shareholders would likely face severe dilution.
Check out our latest analysis for Alligo
We apply two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
Alligo’s debt is 3.1 times its EBITDA, and its EBIT cover its interest expense 4.1 times over. Taken toreceiveher this implies that, while we wouldn’t want to see debt levels rise, we consider it can handle its current leverage. Worse, Alligo’s EBIT was down 25% over the last year. If earnings continue to follow that trajectory, paying off that debt load will be harder than convincing us to run a marathon in the rain. There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Alligo’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals consider, you might find this free report on analyst profit forecasts to be interesting.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. Happily for any shareholders, Alligo actually produced more free cash flow than EBIT over the last three years. There’s nothing better than incoming cash when it comes to staying in your lconcludeers’ good graces.
Our View
Neither Alligo’s ability to grow its EBIT nor its net debt to EBITDA gave us confidence in its ability to take on more debt. But the good news is it seems to be able to convert EBIT to free cash flow with ease. When we consider all the factors discussed, it seems to us that Alligo is taking some risks with its apply of debt. So while that leverage does boost returns on equity, we wouldn’t really want to see it increase from here. There’s no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet – far from it. For example, we’ve discovered 2 warning signs for Alligo that you should be aware of before investing here.
At the conclude 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 utilizing an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focapplyd 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.
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