Is ClearSale (BVMF:CLSA3) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies ClearSale S.A. (BVMF:CLSA3) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for ClearSale

What Is ClearSale's Debt?

You can click the graphic below for the historical numbers, but it shows that ClearSale had R$17.7m of debt in March 2024, down from R$50.5m, one year before. However, its balance sheet shows it holds R$396.8m in cash, so it actually has R$379.1m net cash.

How Healthy Is ClearSale's Balance Sheet?

According to the last reported balance sheet, ClearSale had liabilities of R$140.0m due within 12 months, and liabilities of R$15.8m due beyond 12 months. On the other hand, it had cash of R$396.8m and R$125.8m worth of receivables due within a year. So it can boast R$366.8m more liquid assets than total liabilities.

It's good to see that ClearSale has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, ClearSale boasts net cash, so it's fair to say it does not have a heavy debt load! 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 ClearSale 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.

In the last year ClearSale had a loss before interest and tax, and actually shrunk its revenue by 7.1%, to R$491m. That's not what we would hope to see.

So How Risky Is ClearSale?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that ClearSale had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through R$31m of cash and made a loss of R$19m. While this does make the company a bit risky, it's important to remember it has net cash of R$379.1m. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 instance, we've identified 2 warning signs for ClearSale that 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com