D-BOX Technologies (TSE:DBO) Is Carrying A Fair Bit Of Debt

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. Importantly, D-BOX Technologies Inc. (TSE:DBO) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for D-BOX Technologies

What Is D-BOX Technologies's Debt?

As you can see below, D-BOX Technologies had CA$4.46m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has CA$3.83m in cash leading to net debt of about CA$629.0k.

A Look At D-BOX Technologies' Liabilities

Zooming in on the latest balance sheet data, we can see that D-BOX Technologies had liabilities of CA$7.70m due within 12 months and liabilities of CA$3.13m due beyond that. Offsetting this, it had CA$3.83m in cash and CA$6.24m in receivables that were due within 12 months. So it has liabilities totalling CA$771.0k more than its cash and near-term receivables, combined.

Of course, D-BOX Technologies has a market capitalization of CA$17.6m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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.

Over 12 months, D-BOX Technologies reported revenue of CA$25m, which is a gain of 110%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, D-BOX Technologies still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$71k. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CA$2.7m in negative free cash flow over the last twelve months. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with D-BOX Technologies (including 1 which can't be ignored) .

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.