Does THC Biomed Intl (CSE:THC) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that THC Biomed Intl Ltd. (CSE:THC) does have debt on its balance sheet. 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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for THC Biomed Intl

How Much Debt Does THC Biomed Intl Carry?

As you can see below, THC Biomed Intl had CA$4.32m of debt, at April 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have CA$205.0k in cash offsetting this, leading to net debt of about CA$4.11m.

How Healthy Is THC Biomed Intl's Balance Sheet?

The latest balance sheet data shows that THC Biomed Intl had liabilities of CA$8.05m due within a year, and liabilities of CA$975.3k falling due after that. Offsetting these obligations, it had cash of CA$205.0k as well as receivables valued at CA$109.1k due within 12 months. So its liabilities total CA$8.71m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the CA$4.10m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, THC Biomed Intl would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is THC Biomed Intl's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year THC Biomed Intl had a loss before interest and tax, and actually shrunk its revenue by 9.9%, to CA$2.2m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months THC Biomed Intl produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping CA$3.6m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through CA$358k in negative free cash flow over the last year. That means it's on the risky side of things. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for THC Biomed Intl (3 don't sit too well with us!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.