Is CanadaBis Capital (CVE:CANB) Using Too Much 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.' 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. 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.

What Risk Does Debt Bring?

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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for CanadaBis Capital

How Much Debt Does CanadaBis Capital Carry?

The image below, which you can click on for greater detail, shows that at January 2021 CanadaBis Capital had debt of CA$6.24m, up from CA$5.74m in one year. On the flip side, it has CA$144.7k in cash leading to net debt of about CA$6.10m.

How Strong Is CanadaBis Capital's Balance Sheet?

We can see from the most recent balance sheet that CanadaBis Capital had liabilities of CA$7.38m falling due within a year, and liabilities of CA$1.96m due beyond that. On the other hand, it had cash of CA$144.7k and CA$534.2k worth of receivables due within a year. So its liabilities total CA$8.66m more than the combination of its cash and short-term receivables.

CanadaBis Capital has a market capitalization of CA$25.8m, so it could very likely raise cash to ameliorate 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 you can't view debt in total isolation; since CanadaBis Capital will need earnings to service that debt. 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 CanadaBis Capital wasn't profitable at an EBIT level, but managed to grow its revenue by 2,362%, to CA$7.1m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

While we can certainly appreciate CanadaBis Capital's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost CA$1.6m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$3.9m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for CanadaBis Capital (of which 2 are potentially serious!) you should know about.

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. 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.
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