Is Catapult Group International (ASX:CAT) A Risky Investment?

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. As with many other companies Catapult Group International Limited (ASX:CAT) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Catapult Group International

How Much Debt Does Catapult Group International Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Catapult Group International had US$5.75m of debt, an increase on none, over one year. But it also has US$15.6m in cash to offset that, meaning it has US$9.83m net cash.

How Strong Is Catapult Group International's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Catapult Group International had liabilities of US$61.0m due within 12 months and liabilities of US$8.29m due beyond that. On the other hand, it had cash of US$15.6m and US$23.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$30.6m.

This deficit isn't so bad because Catapult Group International is worth US$115.7m, 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. Despite its noteworthy liabilities, Catapult Group International boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Catapult Group International 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, Catapult Group International reported revenue of US$81m, which is a gain of 13%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Catapult Group International?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Catapult Group International had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$28m of cash and made a loss of US$44m. But the saving grace is the US$9.83m on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Catapult Group International (of which 1 is a bit concerning!) you should know about.

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.