Is CEMATRIX (CVE:CVX) Using Too Much Debt?

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 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 CEMATRIX Corporation (CVE:CVX) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for CEMATRIX

What Is CEMATRIX's Debt?

As you can see below, CEMATRIX had CA$7.20m of debt at September 2021, down from CA$15.7m a year prior. But it also has CA$20.2m in cash to offset that, meaning it has CA$13.0m net cash.

How Strong Is CEMATRIX's Balance Sheet?

We can see from the most recent balance sheet that CEMATRIX had liabilities of CA$5.30m falling due within a year, and liabilities of CA$9.03m due beyond that. Offsetting this, it had CA$20.2m in cash and CA$6.52m in receivables that were due within 12 months. So it can boast CA$12.4m more liquid assets than total liabilities.

It's good to see that CEMATRIX has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, CEMATRIX boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if CEMATRIX can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year CEMATRIX had a loss before interest and tax, and actually shrunk its revenue by 27%, to CA$20m. To be frank that doesn't bode well.

So How Risky Is CEMATRIX?

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 CEMATRIX had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CA$887k and booked a CA$6.7m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CA$13.0m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 4 warning signs we've spotted with CEMATRIX (including 2 which can't be ignored) .

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.