Here's Why CanadaBis Capital (CVE:CANB) Can Afford Some 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 note that CanadaBis Capital Inc. (CVE:CANB) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

View our latest analysis for CanadaBis Capital

What Is CanadaBis Capital's Debt?

As you can see below, at the end of October 2020, CanadaBis Capital had CA$6.31m of debt, up from CA$5.55m a year ago. Click the image for more detail. Net debt is about the same, since the it doesn't have much cash.

How Healthy Is CanadaBis Capital's Balance Sheet?

The latest balance sheet data shows that CanadaBis Capital had liabilities of CA$7.18m due within a year, and liabilities of CA$1.35m falling due after that. Offsetting this, it had CA$88.0k in cash and CA$469.4k in receivables that were due within 12 months. So it has liabilities totalling CA$7.98m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since CanadaBis Capital has a market capitalization of CA$16.9m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is CanadaBis Capital'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.

Over 12 months, CanadaBis Capital reported revenue of CA$5.6m, which is a gain of 9,995%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

Despite the top line growth, CanadaBis Capital still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$2.5m 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. However, it doesn't help that it burned through CA$4.5m of cash over the last year. So suffice it to say we consider the stock very risky. 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. Like risks, for instance. Every company has them, and we've spotted 7 warning signs for CanadaBis Capital (of which 2 are concerning!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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