Does Progressive Planet Solutions (CVE:PLAN) 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 can see that Progressive Planet Solutions Inc. (CVE:PLAN) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Progressive Planet Solutions

What Is Progressive Planet Solutions's Debt?

The image below, which you can click on for greater detail, shows that at October 2022 Progressive Planet Solutions had debt of CA$9.60m, up from CA$229.6k in one year. However, because it has a cash reserve of CA$1.20m, its net debt is less, at about CA$8.40m.

How Strong Is Progressive Planet Solutions' Balance Sheet?

According to the last reported balance sheet, Progressive Planet Solutions had liabilities of CA$3.81m due within 12 months, and liabilities of CA$12.4m due beyond 12 months. Offsetting these obligations, it had cash of CA$1.20m as well as receivables valued at CA$2.31m due within 12 months. So its liabilities total CA$12.7m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Progressive Planet Solutions is worth CA$25.7m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Progressive Planet Solutions's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

While it hasn't made a profit, at least Progressive Planet Solutions booked its first revenue as a publicly listed company, in the last twelve months.

Caveat Emptor

Importantly, Progressive Planet Solutions had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$3.4m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$4.1m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. For example, we've discovered 4 warning signs for Progressive Planet Solutions (2 are a bit concerning!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.