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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies D-BOX Technologies Inc. (TSE:DBO) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View 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 June 2021 D-BOX Technologies had debt of CA$4.58m, up from CA$4.00m in one year. However, it does have CA$6.70m in cash offsetting this, leading to net cash of CA$2.12m.

How Strong Is D-BOX Technologies' Balance Sheet?

We can see from the most recent balance sheet that D-BOX Technologies had liabilities of CA$8.00m falling due within a year, and liabilities of CA$2.20m due beyond that. On the other hand, it had cash of CA$6.70m and CA$3.44m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that D-BOX Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CA$18.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. 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 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 42%, to CA$12m. That makes us nervous, to say the least.

So How Risky Is D-BOX Technologies?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that D-BOX Technologies had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$3.3m of cash and made a loss of CA$6.6m. However, it has net cash of CA$2.12m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for D-BOX Technologies you should be aware of, and 1 of them is a bit unpleasant.

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.

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.

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