Is CEMATRIX (CVE:CVX) Weighed On By Its Debt Load?

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. As with many other companies CEMATRIX Corporation (CVE:CVX) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for CEMATRIX

How Much Debt Does CEMATRIX Carry?

The image below, which you can click on for greater detail, shows that CEMATRIX had debt of CA$7.20m at the end of September 2021, a reduction from CA$15.7m over a year. But it also has CA$20.2m in cash to offset that, meaning it has CA$13.0m net cash.

A Look At CEMATRIX's Liabilities

Zooming in on the latest balance sheet data, we can see that CEMATRIX had liabilities of CA$5.30m due within 12 months 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 actually has CA$12.4m more liquid assets than total liabilities.

This luscious liquidity implies that CEMATRIX's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that CEMATRIX has more cash than debt is arguably a good indication that it can manage its debt safely. 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 CEMATRIX'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.

In the last year CEMATRIX had a loss before interest and tax, and actually shrunk its revenue by 27%, to CA$20m. That makes us nervous, to say the least.

So How Risky Is CEMATRIX?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that CEMATRIX had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$887k of cash and made a loss of CA$6.7m. 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. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with CEMATRIX (including 1 which is potentially serious) .

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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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.