Is D-BOX Technologies (TSE:DBO) Using Too Much 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.' 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 is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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?

The image below, which you can click on for greater detail, shows that D-BOX Technologies had debt of CA$5.10m at the end of September 2022, a reduction from CA$6.66m over a year. However, it does have CA$3.93m in cash offsetting this, leading to net debt of about CA$1.17m.

How Healthy Is D-BOX Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that D-BOX Technologies had liabilities of CA$10.4m due within 12 months and liabilities of CA$3.27m due beyond that. Offsetting these obligations, it had cash of CA$3.93m as well as receivables valued at CA$7.27m due within 12 months. So its liabilities total CA$2.51m more than the combination of its cash and short-term receivables.

Since publicly traded D-BOX Technologies shares are worth a total of CA$18.7m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. 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 76%, to CA$26m. Shareholders probably have their fingers crossed that it can grow its way to profits.

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$287k. 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. Another cause for caution is that is bled CA$1.9m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For example D-BOX Technologies has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.