Does Tantalus Systems Holding (TSE:GRID) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Tantalus Systems Holding Inc. (TSE:GRID) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Tantalus Systems Holding

What Is Tantalus Systems Holding's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 Tantalus Systems Holding had US$11.4m of debt, an increase on US$10.4m, over one year. However, because it has a cash reserve of US$5.15m, its net debt is less, at about US$6.23m.

How Healthy Is Tantalus Systems Holding's Balance Sheet?

According to the last reported balance sheet, Tantalus Systems Holding had liabilities of US$27.3m due within 12 months, and liabilities of US$5.21m due beyond 12 months. Offsetting this, it had US$5.15m in cash and US$7.87m in receivables that were due within 12 months. So its liabilities total US$19.5m more than the combination of its cash and short-term receivables.

Tantalus Systems Holding has a market capitalization of US$53.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Tantalus Systems Holding can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Tantalus Systems Holding reported revenue of US$42m, which is a gain of 6.4%, 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.

Caveat Emptor

Importantly, Tantalus Systems Holding had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$2.3m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$1.1m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Tantalus Systems Holding you should know about.

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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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.