NuRAN Wireless (CSE:NUR) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, NuRAN Wireless Inc. (CSE:NUR) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for NuRAN Wireless

How Much Debt Does NuRAN Wireless Carry?

As you can see below, NuRAN Wireless had CA$2.05m of debt at January 2021, down from CA$4.34m a year prior. On the flip side, it has CA$73.9k in cash leading to net debt of about CA$1.97m.

How Strong Is NuRAN Wireless' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that NuRAN Wireless had liabilities of CA$5.96m due within 12 months and liabilities of CA$1.38m due beyond that. Offsetting these obligations, it had cash of CA$73.9k as well as receivables valued at CA$458.0k due within 12 months. So its liabilities total CA$6.81m more than the combination of its cash and short-term receivables.

Given NuRAN Wireless has a market capitalization of CA$41.2m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. There's no doubt that we learn most about debt from the balance sheet. But it is NuRAN Wireless'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, NuRAN Wireless made a loss at the EBIT level, and saw its revenue drop to CA$2.4m, which is a fall of 20%. That's not what we would hope to see.

Caveat Emptor

While NuRAN Wireless's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at CA$2.5m. 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$2.3m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 6 warning signs with NuRAN Wireless (at least 3 which are a bit unpleasant) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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