Is Harvest Technology Group (ASX:HTG) Weighed On By Its Debt Load?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Harvest Technology Group Ltd (ASX:HTG) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Harvest Technology Group

What Is Harvest Technology Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Harvest Technology Group had AU$3.82m of debt, an increase on AU$3.62m, over one year. But it also has AU$4.50m in cash to offset that, meaning it has AU$682.3k net cash.

How Strong Is Harvest Technology Group's Balance Sheet?

According to the last reported balance sheet, Harvest Technology Group had liabilities of AU$1.91m due within 12 months, and liabilities of AU$5.42m due beyond 12 months. Offsetting this, it had AU$4.50m in cash and AU$744.9k in receivables that were due within 12 months. So it has liabilities totalling AU$2.09m more than its cash and near-term receivables, combined.

Of course, Harvest Technology Group has a market capitalization of AU$46.5m, so these liabilities are probably manageable. 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, 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 it is future earnings, more than anything, that will determine Harvest Technology Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

While it hasn't made a profit, at least Harvest Technology Group booked its first revenue as a publicly listed company, in the last twelve months.

So How Risky Is Harvest Technology Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Harvest Technology Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through AU$9.8m of cash and made a loss of AU$14m. With only AU$682.3k on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For instance, we've identified 5 warning signs for Harvest Technology Group (2 shouldn't be ignored) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.