Is Exro Technologies (TSE:EXRO) 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. We can see that Exro Technologies Inc. (TSE:EXRO) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Exro Technologies

What Is Exro Technologies's Debt?

As you can see below, at the end of September 2023, Exro Technologies had CA$12.0m of debt, up from CA$49.2k a year ago. Click the image for more detail. But on the other hand it also has CA$19.7m in cash, leading to a CA$7.72m net cash position.

A Look At Exro Technologies' Liabilities

Zooming in on the latest balance sheet data, we can see that Exro Technologies had liabilities of CA$5.82m due within 12 months and liabilities of CA$18.0m due beyond that. Offsetting these obligations, it had cash of CA$19.7m as well as receivables valued at CA$563.8k due within 12 months. So it has liabilities totalling CA$3.54m more than its cash and near-term receivables, combined.

This state of affairs indicates that Exro Technologies' 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 CA$200.6m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Exro Technologies 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 Exro Technologies'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.

Over 12 months, Exro Technologies reported revenue of CA$6.6m, which is a gain of 1,650%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Exro Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Exro Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$48m of cash and made a loss of CA$45m. Given it only has net cash of CA$7.72m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Exro Technologies's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Case in point: We've spotted 4 warning signs for Exro Technologies you should be aware of, and 1 of them shouldn't be ignored.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.