Is Crealogix Holding (VTX:CLXN) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Crealogix Holding AG (VTX:CLXN) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Crealogix Holding

What Is Crealogix Holding's Debt?

The image below, which you can click on for greater detail, shows that at June 2020 Crealogix Holding had debt of CHF24.9m, up from CHF8.96m in one year. However, its balance sheet shows it holds CHF36.0m in cash, so it actually has CHF11.0m net cash.

How Healthy Is Crealogix Holding's Balance Sheet?

We can see from the most recent balance sheet that Crealogix Holding had liabilities of CHF41.3m falling due within a year, and liabilities of CHF27.6m due beyond that. Offsetting these obligations, it had cash of CHF36.0m as well as receivables valued at CHF14.9m due within 12 months. So it has liabilities totalling CHF18.0m more than its cash and near-term receivables, combined.

Given Crealogix Holding has a market capitalization of CHF161.0m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Crealogix Holding also has more cash than debt, so we're pretty confident it can manage its debt safely. 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Crealogix Holding's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is Crealogix Holding?

While Crealogix Holding lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CHF6.9m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Crealogix Holding's profit, revenue, and operating cashflow have changed over the last few years.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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