Is CurveBeam AI (ASX:CVB) Weighed On By Its Debt Load?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies CurveBeam AI Limited (ASX:CVB) makes use of debt. But should shareholders be worried about its use of debt?

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, 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.

Check out our latest analysis for CurveBeam AI

What Is CurveBeam AI's Debt?

The chart below, which you can click on for greater detail, shows that CurveBeam AI had AU$13.5m in debt in December 2023; about the same as the year before. However, its balance sheet shows it holds AU$15.0m in cash, so it actually has AU$1.41m net cash.

How Strong Is CurveBeam AI's Balance Sheet?

According to the last reported balance sheet, CurveBeam AI had liabilities of AU$10.3m due within 12 months, and liabilities of AU$13.5m due beyond 12 months. Offsetting this, it had AU$15.0m in cash and AU$3.47m in receivables that were due within 12 months. So it has liabilities totalling AU$5.42m more than its cash and near-term receivables, combined.

Of course, CurveBeam AI has a market capitalization of AU$59.2m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, CurveBeam AI boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine CurveBeam AI's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year CurveBeam AI wasn't profitable at an EBIT level, but managed to grow its revenue by 545%, to AU$9.4m. That's virtually the hole-in-one of revenue growth!

So How Risky Is CurveBeam AI?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that CurveBeam AI had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through AU$26m of cash and made a loss of AU$57m. With only AU$1.41m on the balance sheet, it would appear that its going to need to raise capital again soon. Importantly, CurveBeam AI's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for CurveBeam AI (1 is concerning!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.