Is Martello Technologies Group (CVE:MTLO) A Risky Investment?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Martello Technologies Group Inc. (CVE:MTLO) does have debt on its balance sheet. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Martello Technologies Group

How Much Debt Does Martello Technologies Group Carry?

The image below, which you can click on for greater detail, shows that at September 2019 Martello Technologies Group had debt of CA$2.98m, up from CA$0.8 in one year. But it also has CA$9.01m in cash to offset that, meaning it has CA$6.03m net cash.

How Healthy Is Martello Technologies Group's Balance Sheet?

The latest balance sheet data shows that Martello Technologies Group had liabilities of CA$6.79m due within a year, and liabilities of CA$3.78m falling due after that. On the other hand, it had cash of CA$9.01m and CA$3.52m worth of receivables due within a year. So it actually has CA$1.95m more liquid assets than total liabilities.

This surplus suggests that Martello Technologies Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Martello Technologies 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 future earnings, more than anything, that will determine Martello Technologies Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Martello Technologies Group wasn't profitable at an EBIT level, but managed to grow its revenue by 87%, to CA$13m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Martello Technologies Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Martello Technologies Group had negative earnings before interest and tax (EBIT), over the last year. And over the same period it saw negative free cash outflow of CA$3.2m and booked a CA$4.5m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of CA$6.03m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Martello Technologies Group may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. For example, we've discovered 4 warning signs for Martello Technologies Group (of which 1 is major) which any shareholder or potential investor should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.