Does Organto Foods (CVE:OGO) Have A Healthy Balance Sheet?

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. We note that Organto Foods Inc. (CVE:OGO) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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.

See our latest analysis for Organto Foods

How Much Debt Does Organto Foods Carry?

As you can see below, at the end of March 2022, Organto Foods had CA$8.73m of debt, up from CA$4.15m a year ago. Click the image for more detail. But on the other hand it also has CA$9.54m in cash, leading to a CA$809.1k net cash position.

How Strong Is Organto Foods' Balance Sheet?

We can see from the most recent balance sheet that Organto Foods had liabilities of CA$7.65m falling due within a year, and liabilities of CA$5.83m due beyond that. Offsetting this, it had CA$9.54m in cash and CA$3.00m in receivables that were due within 12 months. So it has liabilities totalling CA$935.3k more than its cash and near-term receivables, combined.

Of course, Organto Foods has a market capitalization of CA$29.6m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Organto Foods 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 Organto Foods'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.

Over 12 months, Organto Foods reported revenue of CA$22m, which is a gain of 49%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Organto Foods?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Organto Foods lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$6.6m and booked a CA$7.4m accounting loss. Given it only has net cash of CA$809.1k, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Organto Foods may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Organto Foods that 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. 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.