CleanSpace Holdings (ASX:CSX) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 CleanSpace Holdings Limited (ASX:CSX) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for CleanSpace Holdings

What Is CleanSpace Holdings's Net Debt?

The chart below, which you can click on for greater detail, shows that CleanSpace Holdings had AU$2.80m in debt in December 2024; about the same as the year before. However, its balance sheet shows it holds AU$8.30m in cash, so it actually has AU$5.50m net cash.

A Look At CleanSpace Holdings' Liabilities

We can see from the most recent balance sheet that CleanSpace Holdings had liabilities of AU$1.70m falling due within a year, and liabilities of AU$4.40m due beyond that. Offsetting these obligations, it had cash of AU$8.30m as well as receivables valued at AU$5.80m due within 12 months. So it actually has AU$8.00m more liquid assets than total liabilities.

It's good to see that CleanSpace Holdings has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, CleanSpace Holdings 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 you can't view debt in total isolation; since CleanSpace Holdings will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year CleanSpace Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 29%, to AU$18m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is CleanSpace Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that CleanSpace Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through AU$1.8m of cash and made a loss of AU$1.4m. But the saving grace is the AU$5.50m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, CleanSpace Holdings may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for CleanSpace Holdings you should be aware of, and 1 of them is potentially serious.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.