Is BuildDirect.com Technologies (CVE:BILD) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, BuildDirect.com Technologies Inc. (CVE:BILD) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is BuildDirect.com Technologies's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2024 BuildDirect.com Technologies had debt of US$11.1m, up from US$10.1m in one year. On the flip side, it has US$2.79m in cash leading to net debt of about US$8.30m.

How Healthy Is BuildDirect.com Technologies' Balance Sheet?

According to the last reported balance sheet, BuildDirect.com Technologies had liabilities of US$14.2m due within 12 months, and liabilities of US$10.4m due beyond 12 months. Offsetting these obligations, it had cash of US$2.79m as well as receivables valued at US$3.69m due within 12 months. So it has liabilities totalling US$18.1m more than its cash and near-term receivables, combined.

This deficit isn't so bad because BuildDirect.com Technologies is worth US$41.7m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since BuildDirect.com Technologies 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.

View our latest analysis for BuildDirect.com Technologies

Over 12 months, BuildDirect.com Technologies made a loss at the EBIT level, and saw its revenue drop to US$65m, which is a fall of 9.4%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months BuildDirect.com Technologies produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$957k 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$1.2m. So to be blunt we do think it is 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. We've identified 2 warning signs with BuildDirect.com Technologies (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.