Here's Why CloudMD Software & Services (CVE:DOC) Can Manage Its Debt Despite Losing Money

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.' 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. Importantly, CloudMD Software & Services Inc. (CVE:DOC) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for CloudMD Software & Services

How Much Debt Does CloudMD Software & Services Carry?

As you can see below, CloudMD Software & Services had CA$2.09m of debt at March 2021, down from CA$3.45m a year prior. But it also has CA$99.2m in cash to offset that, meaning it has CA$97.1m net cash.

A Look At CloudMD Software & Services' Liabilities

The latest balance sheet data shows that CloudMD Software & Services had liabilities of CA$10.7m due within a year, and liabilities of CA$6.69m falling due after that. On the other hand, it had cash of CA$99.2m and CA$4.02m worth of receivables due within a year. So it can boast CA$85.9m more liquid assets than total liabilities.

This surplus suggests that CloudMD Software & Services is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, CloudMD Software & Services boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine CloudMD Software & Services's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, CloudMD Software & Services reported revenue of CA$21m, which is a gain of 138%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is CloudMD Software & Services?

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 CloudMD Software & Services had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$9.8m of cash and made a loss of CA$16m. But at least it has CA$97.1m on the balance sheet to spend on growth, near-term. Importantly, CloudMD Software & Services's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for CloudMD Software & Services (of which 1 is potentially serious!) you should know about.

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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