We Think Clear Blue Technologies International (CVE:CBLU) Has A Fair Chunk Of 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.' 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. As with many other companies Clear Blue Technologies International Inc. (CVE:CBLU) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Clear Blue Technologies International

How Much Debt Does Clear Blue Technologies International Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Clear Blue Technologies International had CA$4.07m of debt, an increase on CA$2.01m, over one year. However, it also had CA$3.51m in cash, and so its net debt is CA$565.8k.

How Healthy Is Clear Blue Technologies International's Balance Sheet?

The latest balance sheet data shows that Clear Blue Technologies International had liabilities of CA$3.20m due within a year, and liabilities of CA$3.95m falling due after that. On the other hand, it had cash of CA$3.51m and CA$1.94m worth of receivables due within a year. So it has liabilities totalling CA$1.70m more than its cash and near-term receivables, combined.

Since publicly traded Clear Blue Technologies International shares are worth a total of CA$39.5m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, Clear Blue Technologies International has virtually no net debt, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Clear Blue Technologies International'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 Clear Blue Technologies International's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Clear Blue Technologies International produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CA$3.4m. 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 CA$3.2m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 5 warning signs for Clear Blue Technologies International (of which 2 make us uncomfortable!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. 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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