Is D-BOX Technologies (TSE:DBO) Weighed On By Its Debt Load?

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. As with many other companies D-BOX Technologies Inc. (TSE:DBO) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out 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 September 2020 D-BOX Technologies had debt of CA$4.94m, up from CA$4.00m in one year. However, its balance sheet shows it holds CA$4.98m in cash, so it actually has CA$35.0k net cash.

A Look At D-BOX Technologies's Liabilities

The latest balance sheet data shows that D-BOX Technologies had liabilities of CA$7.94m due within a year, and liabilities of CA$2.69m falling due after that. Offsetting these obligations, it had cash of CA$4.98m as well as receivables valued at CA$3.82m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$1.83m.

Since publicly traded D-BOX Technologies shares are worth a total of CA$22.0m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, D-BOX Technologies also has more cash than debt, so we're pretty confident it can manage its debt safely. 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.

In the last year D-BOX Technologies had a loss before interest and tax, and actually shrunk its revenue by 43%, to CA$17m. That makes us nervous, to say the least.

So How Risky Is D-BOX Technologies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. 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$2.0m of cash and made a loss of CA$6.6m. However, it has net cash of CA$35.0k, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For instance, we've identified 3 warning signs for D-BOX Technologies (1 doesn't sit too well with us) 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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