Is DMG Blockchain Solutions (CVE:DMGI) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies DMG Blockchain Solutions Inc. (CVE:DMGI) makes use of debt. But should shareholders be worried about its use of debt?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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.

What Is DMG Blockchain Solutions's Debt?

As you can see below, at the end of March 2025, DMG Blockchain Solutions had CA$20.4m of debt, up from CA$12.1m a year ago. Click the image for more detail. However, it does have CA$1.04m in cash offsetting this, leading to net debt of about CA$19.4m.

How Healthy Is DMG Blockchain Solutions' Balance Sheet?

According to the last reported balance sheet, DMG Blockchain Solutions had liabilities of CA$25.5m due within 12 months, and liabilities of CA$131.0k due beyond 12 months. Offsetting this, it had CA$1.04m in cash and CA$3.89m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$20.8m.

This deficit isn't so bad because DMG Blockchain Solutions is worth CA$61.0m, 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if DMG Blockchain Solutions 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.

View our latest analysis for DMG Blockchain Solutions

In the last year DMG Blockchain Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to CA$38m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months DMG Blockchain Solutions produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable CA$17m 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. Another cause for caution is that is bled CA$18m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For example DMG Blockchain Solutions has 4 warning signs (and 1 which is concerning) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.