FirstWave Cloud Technology (ASX:FCT) Is Making Moderate Use Of Debt

Warren Buffett famously said, '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 FirstWave Cloud Technology Limited (ASX:FCT) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does FirstWave Cloud Technology Carry?

The image below, which you can click on for greater detail, shows that at June 2025 FirstWave Cloud Technology had debt of AU$2.41m, up from AU$2.24m in one year. However, it also had AU$364.0k in cash, and so its net debt is AU$2.05m.

How Strong Is FirstWave Cloud Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that FirstWave Cloud Technology had liabilities of AU$7.50m due within 12 months and liabilities of AU$1.88m due beyond that. Offsetting these obligations, it had cash of AU$364.0k as well as receivables valued at AU$894.9k due within 12 months. So it has liabilities totalling AU$8.12m more than its cash and near-term receivables, combined.

This deficit isn't so bad because FirstWave Cloud Technology is worth AU$29.1m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since FirstWave Cloud Technology will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for FirstWave Cloud Technology

Over 12 months, FirstWave Cloud Technology made a loss at the EBIT level, and saw its revenue drop to AU$8.7m, which is a fall of 22%. That makes us nervous, to say the least.

Caveat Emptor

Not only did FirstWave Cloud Technology's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable AU$4.2m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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$1.9m of cash over the last year. So in short it's a really risky stock. 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. For example FirstWave Cloud Technology has 4 warning signs (and 3 which shouldn't be ignored) we think you should know about.

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.