D-BOX Technologies (TSE:DBO) Could Easily Take On More Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, D-BOX Technologies Inc. (TSE:DBO) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for D-BOX Technologies

What Is D-BOX Technologies's Debt?

You can click the graphic below for the historical numbers, but it shows that D-BOX Technologies had CA$2.25m of debt in September 2024, down from CA$4.69m, one year before. But it also has CA$5.38m in cash to offset that, meaning it has CA$3.13m net cash.

How Healthy Is D-BOX Technologies' Balance Sheet?

We can see from the most recent balance sheet that D-BOX Technologies had liabilities of CA$8.42m falling due within a year, and liabilities of CA$1.73m due beyond that. Offsetting this, it had CA$5.38m in cash and CA$7.08m in receivables that were due within 12 months. So it actually has CA$2.31m more liquid assets than total liabilities.

This surplus suggests that D-BOX Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, D-BOX Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

Importantly, D-BOX Technologies grew its EBIT by 42% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is D-BOX Technologies's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While D-BOX Technologies has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, D-BOX Technologies actually produced more free cash flow than EBIT over the last two years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case D-BOX Technologies has CA$3.13m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of CA$4.5m, being 133% of its EBIT. So we don't think D-BOX Technologies's use of debt is risky. 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. To that end, you should be aware of the 3 warning signs we've spotted with D-BOX Technologies .

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.