Is BioNeutra Global (CVE:BGA) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that BioNeutra Global Corporation (CVE:BGA) 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 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for BioNeutra Global

What Is BioNeutra Global's Debt?

You can click the graphic below for the historical numbers, but it shows that BioNeutra Global had CA$6.89m of debt in March 2021, down from CA$7.36m, one year before. And it doesn't have much cash, so its net debt is about the same.

How Strong Is BioNeutra Global's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that BioNeutra Global had liabilities of CA$15.6m due within 12 months and liabilities of CA$6.15m due beyond that. Offsetting these obligations, it had cash of CA$73.1k as well as receivables valued at CA$957.4k due within 12 months. So its liabilities total CA$20.7m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CA$9.75m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, BioNeutra Global would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is BioNeutra Global's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, BioNeutra Global made a loss at the EBIT level, and saw its revenue drop to CA$20m, which is a fall of 44%. To be frank that doesn't bode well.

Caveat Emptor

While BioNeutra Global's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping CA$3.8m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through CA$1.1m in negative free cash flow over the last year. That means it's on the risky side of things. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 4 warning signs with BioNeutra Global , and understanding them should be part of your investment process.

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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