Is Hire Technologies (CVE:HIRE) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Hire Technologies Inc. (CVE:HIRE) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Hire Technologies

What Is Hire Technologies's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Hire Technologies had CA$6.10m of debt, an increase on CA$3.22m, over one year. However, it also had CA$1.18m in cash, and so its net debt is CA$4.92m.

How Strong Is Hire Technologies' Balance Sheet?

The latest balance sheet data shows that Hire Technologies had liabilities of CA$17.0m due within a year, and liabilities of CA$4.97m falling due after that. On the other hand, it had cash of CA$1.18m and CA$6.51m worth of receivables due within a year. So its liabilities total CA$14.3m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CA$5.50m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Hire Technologies would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Hire 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.

In the last year Hire Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 124%, to CA$31m. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, Hire Technologies still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$2.6m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through CA$1.4m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 5 warning signs with Hire Technologies (at least 3 which are significant) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.