Is Zoomd Technologies (CVE:ZOMD) Weighed On By Its Debt Load?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Zoomd Technologies Ltd. (CVE:ZOMD) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Zoomd Technologies

What Is Zoomd Technologies's Debt?

The image below, which you can click on for greater detail, shows that at June 2021 Zoomd Technologies had debt of US$2.00m, up from none in one year. But on the other hand it also has US$2.19m in cash, leading to a US$189.0k net cash position.

How Strong Is Zoomd Technologies' Balance Sheet?

According to the last reported balance sheet, Zoomd Technologies had liabilities of US$10.6m due within 12 months, and liabilities of US$868.0k due beyond 12 months. Offsetting this, it had US$2.19m in cash and US$8.84m in receivables that were due within 12 months. So its liabilities total US$447.0k more than the combination of its cash and short-term receivables.

This state of affairs indicates that Zoomd Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$47.1m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Zoomd Technologies also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Zoomd Technologies's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Zoomd Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to US$31m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Zoomd Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Zoomd Technologies lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$2.9m and booked a US$2.6m accounting loss. But at least it has US$189.0k on the balance sheet to spend on growth, near-term. Zoomd Technologies's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. 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. Be aware that Zoomd Technologies is showing 4 warning signs in our investment analysis , and 2 of those are significant...

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.

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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