Does Harvest Technology Group (ASX:HTG) 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. Importantly, Harvest Technology Group Ltd (ASX:HTG) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Harvest Technology Group

What Is Harvest Technology Group's Debt?

As you can see below, Harvest Technology Group had AU$3.59m of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. But it also has AU$6.75m in cash to offset that, meaning it has AU$3.16m net cash.

A Look At Harvest Technology Group's Liabilities

We can see from the most recent balance sheet that Harvest Technology Group had liabilities of AU$5.47m falling due within a year, and liabilities of AU$3.61m due beyond that. On the other hand, it had cash of AU$6.75m and AU$945.8k worth of receivables due within a year. So its liabilities total AU$1.39m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Harvest Technology Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the AU$175.0m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Harvest Technology Group also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Harvest Technology Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Harvest Technology Group reported revenue of AU$8.5m, which is a gain of 62%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Harvest Technology Group?

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 Harvest Technology Group had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through AU$2.2m of cash and made a loss of AU$11m. With only AU$3.16m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Harvest Technology Group may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Harvest Technology Group 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. 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.
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