Is CanadaBis Capital (CVE:CANB) A Risky Investment?

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.' 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. As with many other companies CanadaBis Capital Inc. (CVE:CANB) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for CanadaBis Capital

What Is CanadaBis Capital's Net Debt?

The image below, which you can click on for greater detail, shows that at April 2022 CanadaBis Capital had debt of CA$8.19m, up from CA$7.43m in one year. Net debt is about the same, since the it doesn't have much cash.

A Look At CanadaBis Capital's Liabilities

We can see from the most recent balance sheet that CanadaBis Capital had liabilities of CA$10.8m falling due within a year, and liabilities of CA$966.2k due beyond that. Offsetting these obligations, it had cash of CA$57.6k as well as receivables valued at CA$1.18m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$10.6m.

This deficit casts a shadow over the CA$5.49m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, CanadaBis Capital 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 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$9.2m, which is a gain of 4.2%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, CanadaBis Capital had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$610k at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of CA$1.1m over the last twelve months. 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. To that end, you should be aware of the 3 warning signs we've spotted with CanadaBis Capital .

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.