Is BuildDirect.com Technologies (CVE:BILD) Using Debt In A Risky Way?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies BuildDirect.com Technologies Inc. (CVE:BILD) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

View our latest analysis for BuildDirect.com Technologies

How Much Debt Does BuildDirect.com Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that BuildDirect.com Technologies had US$10.6m of debt in September 2023, down from US$12.0m, one year before. However, it does have US$3.40m in cash offsetting this, leading to net debt of about US$7.18m.

How Strong Is BuildDirect.com Technologies' Balance Sheet?

We can see from the most recent balance sheet that BuildDirect.com Technologies had liabilities of US$13.2m falling due within a year, and liabilities of US$10.1m due beyond that. Offsetting this, it had US$3.40m in cash and US$4.79m in receivables that were due within 12 months. So it has liabilities totalling US$15.1m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of US$16.2m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if BuildDirect.com Technologies can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year BuildDirect.com Technologies had a loss before interest and tax, and actually shrunk its revenue by 18%, to US$77m. We would much prefer see growth.

Caveat Emptor

While BuildDirect.com Technologies's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$719k. 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. We would feel better if it turned its trailing twelve month loss of US$6.5m into a profit. In the meantime, we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for BuildDirect.com Technologies (1 doesn't sit too well with us) you should be aware of.

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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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.