Here's Why Tantalus Systems Holding (TSE:GRID) Can Afford Some Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We note that Tantalus Systems Holding Inc. (TSE:GRID) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Tantalus Systems Holding

How Much Debt Does Tantalus Systems Holding Carry?

As you can see below, Tantalus Systems Holding had US$10.6m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had US$10.3m in cash, and so its net debt is US$275.1k.

A Look At Tantalus Systems Holding's Liabilities

Zooming in on the latest balance sheet data, we can see that Tantalus Systems Holding had liabilities of US$26.5m due within 12 months and liabilities of US$4.24m due beyond that. Offsetting this, it had US$10.3m in cash and US$8.11m in receivables that were due within 12 months. So it has liabilities totalling US$12.3m more than its cash and near-term receivables, combined.

Of course, Tantalus Systems Holding has a market capitalization of US$72.8m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Carrying virtually no net debt, Tantalus Systems Holding has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. 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 made a loss at the EBIT level, and saw its revenue drop to US$42m, which is a fall of 4.2%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Tantalus Systems Holding produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$2.0m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$779k of cash over the last year. So to be blunt we think it is risky. 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. We've identified 1 warning sign with Tantalus Systems Holding , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.