We Think Parkit Enterprise (CVE:PKT) Has A Fair Chunk Of Debt

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. Importantly, Parkit Enterprise Inc. (CVE:PKT) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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 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 the opportunities and risks within the CA Commercial Services industry.

How Much Debt Does Parkit Enterprise Carry?

As you can see below, at the end of June 2022, Parkit Enterprise had CA$67.3m of debt, up from CA$25.9m a year ago. Click the image for more detail. However, it also had CA$21.3m in cash, and so its net debt is CA$46.0m.

A Look At Parkit Enterprise's Liabilities

Zooming in on the latest balance sheet data, we can see that Parkit Enterprise had liabilities of CA$3.35m due within 12 months and liabilities of CA$68.1m due beyond that. Offsetting these obligations, it had cash of CA$21.3m as well as receivables valued at CA$809.8k due within 12 months. So its liabilities total CA$49.4m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Parkit Enterprise is worth CA$246.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Parkit Enterprise 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.

Over 12 months, Parkit Enterprise reported revenue of CA$8.9m, which is a gain of 252%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

Despite the top line growth, Parkit Enterprise still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$1.4m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of CA$1.2m. So we do think this stock is quite risky. For riskier companies like Parkit Enterprise I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.