Health Check: How Prudently Does D-BOX Technologies (TSE:DBO) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for D-BOX Technologies

How Much Debt Does D-BOX Technologies Carry?

The image below, which you can click on for greater detail, shows that at March 2021 D-BOX Technologies had debt of CA$4.95m, up from CA$4.03m in one year. However, it does have CA$9.13m in cash offsetting this, leading to net cash of CA$4.18m.

A Look At D-BOX Technologies' Liabilities

We can see from the most recent balance sheet that D-BOX Technologies had liabilities of CA$7.86m falling due within a year, and liabilities of CA$2.34m due beyond that. On the other hand, it had cash of CA$9.13m and CA$2.37m worth of receivables due within a year. So it actually has CA$1.30m more liquid assets than total liabilities.

This short term liquidity is a sign that D-BOX Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, D-BOX Technologies made a loss at the EBIT level, and saw its revenue drop to CA$11m, which is a fall of 57%. That makes us nervous, to say the least.

So How Risky Is D-BOX Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months D-BOX Technologies lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$794k of cash and made a loss of CA$6.2m. However, it has net cash of CA$4.18m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for D-BOX Technologies (1 is a bit concerning) you should be aware of.

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. 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.
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