Is Devonian Health Group (CVE:GSD) Weighed On By Its Debt Load?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Devonian Health Group Inc. (CVE:GSD) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Devonian Health Group

How Much Debt Does Devonian Health Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of April 2022 Devonian Health Group had CA$5.24m of debt, an increase on CA$4.95m, over one year. However, it does have CA$9.49m in cash offsetting this, leading to net cash of CA$4.25m.

How Healthy Is Devonian Health Group's Balance Sheet?

The latest balance sheet data shows that Devonian Health Group had liabilities of CA$1.12m due within a year, and liabilities of CA$5.25m falling due after that. Offsetting these obligations, it had cash of CA$9.49m as well as receivables valued at CA$529.4k due within 12 months. So it actually has CA$3.65m more liquid assets than total liabilities.

This surplus suggests that Devonian Health Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Devonian Health Group boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Devonian Health Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Devonian Health Group wasn't profitable at an EBIT level, but managed to grow its revenue by 38%, to CA$2.0m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Devonian Health Group?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Devonian Health Group had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of CA$2.0m and booked a CA$3.6m accounting loss. With only CA$4.25m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Devonian Health Group may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger 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. Be aware that Devonian Health Group is showing 4 warning signs in our investment analysis , and 1 of those is concerning...

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. 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.