Does Pureprofile (ASX:PPL) Have A Healthy Balance Sheet?

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.' 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 Pureprofile Ltd (ASX:PPL) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

Check out our latest analysis for Pureprofile

What Is Pureprofile's Net Debt?

As you can see below, Pureprofile had AU$3.00m of debt, at December 2022, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds AU$4.10m in cash, so it actually has AU$1.10m net cash.

How Healthy Is Pureprofile's Balance Sheet?

The latest balance sheet data shows that Pureprofile had liabilities of AU$16.3m due within a year, and liabilities of AU$2.01m falling due after that. Offsetting this, it had AU$4.10m in cash and AU$9.66m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$4.57m.

Given Pureprofile has a market capitalization of AU$32.7m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Pureprofile also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Pureprofile can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Pureprofile reported revenue of AU$46m, which is a gain of 27%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Pureprofile?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Pureprofile had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through AU$162k of cash and made a loss of AU$2.1m. With only AU$1.10m on the balance sheet, it would appear that its going to need to raise capital again soon. Pureprofile's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Pureprofile you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.