Is BioNeutra Global (CVE:BGA) Weighed On By Its Debt Load?

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.' 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 note that BioNeutra Global Corporation (CVE:BGA) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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.

See our latest analysis for BioNeutra Global

What Is BioNeutra Global's Debt?

The image below, which you can click on for greater detail, shows that BioNeutra Global had debt of CA$7.19m at the end of September 2020, a reduction from CA$8.30m over a year. However, because it has a cash reserve of CA$2.50m, its net debt is less, at about CA$4.69m.

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$15.7m due within 12 months and liabilities of CA$6.55m due beyond that. Offsetting this, it had CA$2.50m in cash and CA$1.51m in receivables that were due within 12 months. So its liabilities total CA$18.2m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CA$11.4m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, BioNeutra Global would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since BioNeutra Global 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.

In the last year BioNeutra Global had a loss before interest and tax, and actually shrunk its revenue by 18%, to CA$29m. We would much prefer see growth.

Caveat Emptor

Not only did BioNeutra Global's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable CA$7.3m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of CA$6.8m. In the meantime, we consider the stock to be risky. 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 3 warning signs for BioNeutra Global you should be aware of, and 2 of them are significant.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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