Is Tantalus Systems Holding (TSE:GRID) Using Debt Sensibly?

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.' 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. As with many other companies Tantalus Systems Holding Inc. (TSE:GRID) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Tantalus Systems Holding's Net Debt?

The image below, which you can click on for greater detail, shows that Tantalus Systems Holding had debt of US$10.6m at the end of December 2024, a reduction from US$11.4m over a year. But on the other hand it also has US$13.2m in cash, leading to a US$2.63m net cash position.

A Look At Tantalus Systems Holding's Liabilities

The latest balance sheet data shows that Tantalus Systems Holding had liabilities of US$27.7m due within a year, and liabilities of US$6.87m falling due after that. On the other hand, it had cash of US$13.2m and US$10.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$11.4m.

Given Tantalus Systems Holding has a market capitalization of US$65.6m, 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. Despite its noteworthy liabilities, Tantalus Systems Holding boasts net cash, so it's fair to say it does not have a heavy debt load! 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're focused on the future you can check out this free report showing analyst profit forecasts.

View our latest analysis for Tantalus Systems Holding

In the last year Tantalus Systems Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 5.1%, to US$44m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Tantalus Systems Holding?

Although Tantalus Systems Holding had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$2.2m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. Case in point: We've spotted 1 warning sign for Tantalus Systems Holding you should be aware of.

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.