Crealogix Holding (VTX:CLXN) Is Making Moderate Use 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.' 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. We note that Crealogix Holding AG (VTX:CLXN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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 Crealogix Holding

What Is Crealogix Holding's Debt?

As you can see below, at the end of December 2022, Crealogix Holding had CHF37.4m of debt, up from CHF24.2m a year ago. Click the image for more detail. However, because it has a cash reserve of CHF10.2m, its net debt is less, at about CHF27.2m.

How Strong Is Crealogix Holding's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Crealogix Holding had liabilities of CHF36.3m due within 12 months and liabilities of CHF26.1m due beyond that. Offsetting these obligations, it had cash of CHF10.2m as well as receivables valued at CHF13.8m due within 12 months. So its liabilities total CHF38.4m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of CHF62.5m, so it does suggest shareholders should keep an eye on Crealogix Holding's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Crealogix 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, Crealogix Holding made a loss at the EBIT level, and saw its revenue drop to CHF91m, which is a fall of 11%. That's not what we would hope to see.

Caveat Emptor

While Crealogix Holding's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping CHF11m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CHF14m of cash over the last year. 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. We've identified 3 warning signs with Crealogix Holding (at least 2 which can't be ignored) , 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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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.