D-BOX Technologies (TSE:DBO) Has Debt But No Earnings; Should You Worry?

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.' 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 D-BOX Technologies Inc. (TSE:DBO) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for D-BOX Technologies

What Is D-BOX Technologies's Debt?

As you can see below, D-BOX Technologies had CA$4.07m of debt at December 2021, down from CA$5.32m a year prior. However, its balance sheet shows it holds CA$5.17m in cash, so it actually has CA$1.10m net cash.

How Strong Is D-BOX Technologies' Balance Sheet?

The latest balance sheet data shows that D-BOX Technologies had liabilities of CA$6.94m due within a year, and liabilities of CA$3.53m falling due after that. On the other hand, it had cash of CA$5.17m and CA$4.81m worth of receivables due within a year. So it has liabilities totalling CA$493.0k more than its cash and near-term receivables, combined.

Given D-BOX Technologies has a market capitalization of CA$22.0m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, D-BOX Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since D-BOX Technologies will need earnings to service that debt. 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.

In the last year D-BOX Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to CA$17m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is D-BOX Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year D-BOX Technologies had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CA$3.2m of cash and made a loss of CA$4.6m. But at least it has CA$1.10m on the balance sheet to spend on growth, near-term. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. Be aware that D-BOX Technologies is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.