Health Check: How Prudently Does SLANG Worldwide (CSE:SLNG) Use Debt?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, SLANG Worldwide Inc. (CSE:SLNG) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for SLANG Worldwide

How Much Debt Does SLANG Worldwide Carry?

You can click the graphic below for the historical numbers, but it shows that SLANG Worldwide had CA$2.59m of debt in September 2021, down from CA$3.87m, one year before. However, its balance sheet shows it holds CA$3.51m in cash, so it actually has CA$924.6k net cash.

How Strong Is SLANG Worldwide's Balance Sheet?

According to the last reported balance sheet, SLANG Worldwide had liabilities of CA$16.7m due within 12 months, and liabilities of CA$31.1m due beyond 12 months. Offsetting these obligations, it had cash of CA$3.51m as well as receivables valued at CA$7.94m due within 12 months. So its liabilities total CA$36.3m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of CA$44.1m, so it does suggest shareholders should keep an eye on SLANG Worldwide's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. While it does have liabilities worth noting, SLANG Worldwide also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if SLANG Worldwide can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

It seems likely shareholders hope that SLANG Worldwide can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

So How Risky Is SLANG Worldwide?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months SLANG Worldwide lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$13m of cash and made a loss of CA$54m. Given it only has net cash of CA$924.6k, the company may need to raise more capital if it doesn't reach break-even soon. SLANG Worldwide's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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 example, we've discovered 5 warning signs for SLANG Worldwide (3 shouldn't be ignored!) that you should be aware of before investing here.

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.