Cash‑flow and liquidity picture after the earnings drop
| Item (Q2 2025) | Prior‑period (Q2 2024) | Δ (Δ%) |
|---|---|---|
| Order intake | SEK 241.2 M | SEK 290.3 M (‑49 M, –16.9 %) |
| Net sales | SEK 304.9 M | SEK 318.9 M (‑14 M, –4.4 %) |
| Operating profit | SEK 36.4 M | SEK 79.3 M (‑42.9 M, –54.1 %) |
| Profit after tax | SEK 30.8 M | SEK 61.4 M (‑30.6 M, –49.9 %) |
| EPS (pre/post‑tax) | – (not disclosed) | – (not disclosed) |
The headline numbers show that earnings have been cut roughly in half, while the top‑line (sales) fell only modestly. The larger swing in profitability therefore stems from higher cost‑of‑goods‑sold, SG&A or other operating expenses, or from a weaker margin on the same sales base.
1. How the earnings decline translates into cash‑flow
| Cash‑flow source | What the numbers suggest | Typical impact |
|---|---|---|
| Operating cash‑flow (OCF) | Operating profit is down ~54 %. Assuming a similar EBIT‑to‑cash conversion as the prior period, OCF will be roughly halved. Even if non‑cash items (depreciation, amortisation, provisions) are unchanged, the cash generated from core operations will shrink dramatically. | • Lower cash generation to fund working‑capital needs, capex, and debt service. • Potential short‑run cash‑flow gap if the company cannot offset the decline with inventory or receivable reductions. |
| Net sales decline (‑4.4 %) | A modest sales drop still means less cash received from customers. If the collection period stays constant, cash‑inflow from sales will be ~5 % lower. | • Slightly tighter cash‑inflow from the top line, but the main cash‑flow squeeze comes from the profit margin compression. |
| Order intake (‑16.9 %) | Fewer new orders will likely translate into a slower pipeline of future cash receipts. The impact will be felt beyond the current quarter as the backlog shrinks. | • Future cash‑flow outlook is weaker, increasing the risk of a prolonged cash‑generation shortfall. |
| Profit after tax (‑49.9 %) | A near‑50 % drop in net income means lower retained earnings and, consequently, a smaller “cash‑reserve” buffer that can be used for internal financing. | • Less internal funding available for dividend payouts, share‑repurchases, or strategic investments. |
Bottom‑line: The cash‑flow impact is dominated by the steep fall in operating profit rather than the modest sales dip. The company will see a significant reduction in operating cash‑flow and a diminished ability to build or maintain cash reserves.
2. Liquidity implications
| Liquidity metric | Implication of the earnings drop |
|---|---|
| Free cash flow (FCF) | With OCF halved and capital‑expenditure (Capex) likely unchanged, FCF will shrink sharply, possibly turning negative if Capex exceeds the reduced OCF. |
| Cash‑conversion cycle | If the company tries to protect cash by tightening credit terms, the Days Sales Outstanding (DSO) may rise, further delaying cash inflows. Conversely, if it pushes inventory reductions, Days Inventory Outstanding (DIO) could improve, but at the risk of stock‑outs and lost sales. |
| Liquidity ratios (Current ratio, Quick ratio) | Assuming the balance sheet remains unchanged, a lower cash‑generation stream will erode the current‑ratio over time as cash on hand declines while current liabilities stay constant. |
| Debt‑service capacity | The interest‑coverage ratio (EBIT/interest expense) will fall roughly 50 %, tightening the cushion for existing debt. If the company has any covenants tied to earnings or cash‑flow, it may be at risk of breach. |
| Dividend policy | Halved earnings make it difficult to sustain the previous dividend payout (if any). A cut or suspension would further pressure the share price but preserve cash. |
| Financing needs | The company may need to raise external capital (e.g., revolving credit facility, term loan, or equity issuance) to bridge the cash‑flow gap, especially if the cash‑reserve buffer is thin. |
| Credit rating | Rating agencies typically view a sharp earnings contraction as a negative signal, potentially leading to a downgrade that would increase borrowing costs. |
3. What drives the cash‑flow squeeze?
- Margin compression – Operating profit fell 54 % while sales only fell 4 %. This indicates higher cost‑of‑goods‑sold, SG&A, or possibly one‑off expenses that ate into cash‑generating profit.
- Lower order intake – A 17 % drop in new orders means the future sales pipeline is weaker, reducing expected cash inflows beyond the current quarter.
- Fixed cost base – If many costs are semi‑fixed (R&D, overhead, facility costs), the company cannot proportionally cut them when sales dip, leading to a disproportionate hit on cash‑flow.
4. Potential actions to protect cash‑flow and liquidity
| Strategic levers | How they help |
|---|---|
| Accelerate collections | Tighten credit terms, offer early‑payment discounts, or use factoring to bring receivables to cash faster. |
| Working‑capital optimisation | Reduce inventory levels (just‑in‑time purchasing), renegotiate supplier payment terms, and defer non‑critical capex. |
| Cost‑structure review | Identify and trim discretionary SG&A, pause non‑essential R&D projects, and explore cost‑sharing with partners. |
| Preserve cash reserves | Suspend or reduce dividend, share‑repurchase programmes, and discretionary marketing spend. |
| External financing | Secure a revolving credit facility with a modest draw‑down capacity to cover short‑term cash‑flow gaps; consider a convertible bond if equity markets are supportive. |
| Margin‑improvement initiatives | Pass a portion of higher costs to customers via price adjustments, improve product mix toward higher‑margin offerings, or renegotiate long‑term supply contracts. |
| Scenario‑planning & covenant monitoring | Model cash‑flow under different sales‑and‑margin assumptions to anticipate covenant breaches and proactively engage lenders. |
5. Bottom line for stakeholders
- Investors: Expect a reduction in cash‑return potential (dividends, buy‑backs) and a higher risk of liquidity strain if the earnings trend continues. The share price may face downward pressure until the company demonstrates a clear path to margin recovery or cash‑flow stabilization.
- Creditors: The degraded interest‑coverage ratio and weaker cash‑generation raise concerns about the company’s ability to meet existing debt obligations without additional financing. Lenders may request tighter covenants or higher margins on any new facilities.
- Management: The priority should be preserving operating cash‑flow through working‑capital discipline, cost control, and, if needed, short‑term external financing. Communicating a credible plan to restore margins (e.g., pricing, cost‑reduction, product mix) will be critical to maintaining stakeholder confidence.
TL;DR
- Operating cash‑flow is likely cut by ~50 %, far outpacing the modest 4 % sales decline.
- Liquidity ratios, free cash flow, and debt‑service capacity will weaken, raising the risk of covenant breaches and a need for external financing.
- Management must focus on working‑capital optimisation, cost‑control, and possibly raise a modest credit line to bridge the cash‑gap while communicating a margin‑recovery plan to the market.
Other Questions About This News
What are the primary drivers behind the significant drop in operating profit from SEK 79.3M to SEK 36.4M?
Are there any changes in the product mix or pricing that explain the revenue decrease?
Will the company provide guidance on future order intake and sales for Q3 and Q4 2025?
How does the current EPS after tax compare to analyst consensus estimates?
What is the impact of the lower earnings on the dividend policy and payout ratio?
How does RaySearch’s performance compare with its main competitors in the medical software market?
What are the expectations for the upcoming product launches or regulatory approvals that could offset the current downtrend?
How does the decline in order intake and net sales versus the prior period affect our revenue forecasts for the remainder of 2025?
Does management expect any cost‑cutting or restructuring measures to improve profitability?
How sensitive is the stock price likely to be to these earnings results given the -60 sentiment score?
What is the outlook for operating margins and how does it compare to the prior quarter?