Is Zoomd Technologies (CVE:ZOMD) Using Too Much Debt?

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. Importantly, Zoomd Technologies Ltd. (CVE:ZOMD) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Zoomd Technologies

What Is Zoomd Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Zoomd Technologies had US$1.91m of debt in March 2024, down from US$2.00m, one year before. But on the other hand it also has US$2.26m in cash, leading to a US$348.0k net cash position.

How Healthy Is Zoomd Technologies' Balance Sheet?

According to the last reported balance sheet, Zoomd Technologies had liabilities of US$7.87m due within 12 months, and liabilities of US$1.98m due beyond 12 months. On the other hand, it had cash of US$2.26m and US$6.54m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.06m.

Since publicly traded Zoomd Technologies shares are worth a total of US$13.3m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Zoomd Technologies boasts net cash, so it's fair to say it does not have a heavy debt load!

Notably, Zoomd Technologies made a loss at the EBIT level, last year, but improved that to positive EBIT of US$5.0k in the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is Zoomd Technologies'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Zoomd Technologies has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, Zoomd Technologies actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Zoomd Technologies's liabilities, but we can be reassured by the fact it has has net cash of US$348.0k. The cherry on top was that in converted 4,420% of that EBIT to free cash flow, bringing in US$221k. So we don't have any problem with Zoomd Technologies's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Zoomd Technologies is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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