Does Urbanimmersive (CVE:UI) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Urbanimmersive Inc. (CVE:UI) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Urbanimmersive

What Is Urbanimmersive's Debt?

You can click the graphic below for the historical numbers, but it shows that Urbanimmersive had CA$2.03m of debt in June 2021, down from CA$4.30m, one year before. However, its balance sheet shows it holds CA$2.03m in cash, so it actually has CA$1.7k net cash.

How Healthy Is Urbanimmersive's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Urbanimmersive had liabilities of CA$999.4k due within 12 months and liabilities of CA$2.30m due beyond that. Offsetting these obligations, it had cash of CA$2.03m as well as receivables valued at CA$356.6k due within 12 months. So it has liabilities totalling CA$907.4k more than its cash and near-term receivables, combined.

Since publicly traded Urbanimmersive shares are worth a total of CA$16.0m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Urbanimmersive boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Urbanimmersive's earnings that will influence how the balance sheet holds up in the future. 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.

Over 12 months, Urbanimmersive reported revenue of CA$4.4m, which is a gain of 11%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Urbanimmersive?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Urbanimmersive lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$1.1m of cash and made a loss of CA$1.9m. With only CA$1.7k on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 4 warning signs for Urbanimmersive (1 makes us a bit uncomfortable) you should be aware of.

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.
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