CurveBeam AI (ASX:CVB) Is Making Moderate Use Of Debt

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. As with many other companies CurveBeam AI Limited (ASX:CVB) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for CurveBeam AI

What Is CurveBeam AI's Debt?

As you can see below, at the end of December 2024, CurveBeam AI had AU$15.5m of debt, up from AU$13.5m a year ago. Click the image for more detail. On the flip side, it has AU$8.85m in cash leading to net debt of about AU$6.67m.

How Healthy Is CurveBeam AI's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CurveBeam AI had liabilities of AU$8.83m due within 12 months and liabilities of AU$17.1m due beyond that. Offsetting this, it had AU$8.85m in cash and AU$1.83m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$15.2m.

While this might seem like a lot, it is not so bad since CurveBeam AI has a market capitalization of AU$38.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if CurveBeam AI 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.

In the last year CurveBeam AI had a loss before interest and tax, and actually shrunk its revenue by 16%, to AU$7.9m. That's not what we would hope to see.

Caveat Emptor

While CurveBeam AI's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping AU$19m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through AU$17m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that CurveBeam AI is showing 6 warning signs in our investment analysis , and 2 of those are potentially serious...

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.