Is iCandy Interactive (ASX:ICI) Weighed On By Its Debt Load?

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 note that iCandy Interactive Limited (ASX:ICI) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for iCandy Interactive

What Is iCandy Interactive's Net Debt?

The image below, which you can click on for greater detail, shows that iCandy Interactive had debt of AU$4.28m at the end of June 2024, a reduction from AU$7.03m over a year. However, it does have AU$5.19m in cash offsetting this, leading to net cash of AU$912.5k.

How Healthy Is iCandy Interactive's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that iCandy Interactive had liabilities of AU$3.86m due within 12 months and liabilities of AU$3.18m due beyond that. On the other hand, it had cash of AU$5.19m and AU$3.09m worth of receivables due within a year. So it actually has AU$1.24m more liquid assets than total liabilities.

This surplus suggests that iCandy Interactive has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, iCandy Interactive 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 iCandy Interactive's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, iCandy Interactive reported revenue of AU$27m, which is a gain of 7.2%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is iCandy Interactive?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months iCandy Interactive lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through AU$1.9m of cash and made a loss of AU$8.9m. While this does make the company a bit risky, it's important to remember it has net cash of AU$912.5k. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 3 warning signs for iCandy Interactive (2 are a bit unpleasant!) 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.

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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.