Is Water Ways Technologies (CVE:WWT) 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. We can see that Water Ways Technologies Inc. (CVE:WWT) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

See our latest analysis for Water Ways Technologies

What Is Water Ways Technologies's Net Debt?

As you can see below, at the end of September 2022, Water Ways Technologies had US$1.80m of debt, up from US$1.38m a year ago. Click the image for more detail. However, its balance sheet shows it holds US$1.99m in cash, so it actually has US$192.0k net cash.

A Look At Water Ways Technologies' Liabilities

Zooming in on the latest balance sheet data, we can see that Water Ways Technologies had liabilities of US$5.59m due within 12 months and liabilities of US$3.40m due beyond that. Offsetting this, it had US$1.99m in cash and US$3.87m in receivables that were due within 12 months. So its liabilities total US$3.14m more than the combination of its cash and short-term receivables.

Since publicly traded Water Ways Technologies shares are worth a total of US$20.3m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Water Ways Technologies 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 you can't view debt in total isolation; since Water Ways Technologies will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Water Ways Technologies had a loss before interest and tax, and actually shrunk its revenue by 13%, to US$13m. We would much prefer see growth.

So How Risky Is Water Ways Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Water Ways Technologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$2.4m and booked a US$642k accounting loss. With only US$192.0k 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. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Water Ways Technologies (2 can't be ignored!) that you should be aware of before investing here.

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.

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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.