WEBULL

Embracer Group (STO:EMBRAC B) Has A Pretty Healthy Balance Sheet

Simply Wall St · 3d ago

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Embracer Group AB (publ) (STO:EMBRAC B) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Embracer Group's Debt?

The image below, which you can click on for greater detail, shows that Embracer Group had debt of kr1.89b at the end of September 2025, a reduction from kr17.2b over a year. But on the other hand it also has kr6.13b in cash, leading to a kr4.24b net cash position.

debt-equity-history-analysis
OM:EMBRAC B Debt to Equity History January 6th 2026

How Healthy Is Embracer Group's Balance Sheet?

We can see from the most recent balance sheet that Embracer Group had liabilities of kr6.16b falling due within a year, and liabilities of kr3.18b due beyond that. Offsetting this, it had kr6.13b in cash and kr3.13b in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Embracer Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the kr12.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Embracer Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Embracer Group

Better yet, Embracer Group grew its EBIT by 135% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Embracer Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Embracer Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Embracer Group saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

We could understand if investors are concerned about Embracer Group's liabilities, but we can be reassured by the fact it has has net cash of kr4.24b. And we liked the look of last year's 135% year-on-year EBIT growth. So we don't have any problem with Embracer Group's use of debt. 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. To that end, you should learn about the 3 warning signs we've spotted with Embracer Group (including 1 which can't be ignored) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.