Is Unisync (TSE:UNI) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Unisync Corp. (TSE:UNI) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Unisync Carry?

As you can see below, Unisync had CA$39.7m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have CA$1.04m in cash offsetting this, leading to net debt of about CA$38.6m.

How Healthy Is Unisync's Balance Sheet?

According to the last reported balance sheet, Unisync had liabilities of CA$49.7m due within 12 months, and liabilities of CA$28.2m due beyond 12 months. On the other hand, it had cash of CA$1.04m and CA$12.8m worth of receivables due within a year. So its liabilities total CA$64.1m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the CA$23.0m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Unisync would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Unisync 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.

View our latest analysis for Unisync

Over 12 months, Unisync made a loss at the EBIT level, and saw its revenue drop to CA$87m, which is a fall of 8.1%. That's not what we would hope to see.

Caveat Emptor

Importantly, Unisync had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$1.5m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of CA$5.0m in the last year. So we think this stock is quite risky. We'd prefer to pass. 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 Unisync has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.