Is Cibox Inter@ctive (EPA:ALCBX) Using Too Much Debt?

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.' 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. We note that Cibox Inter@ctive (EPA:ALCBX) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Cibox Inter@ctive

What Is Cibox Inter@ctive's Debt?

The chart below, which you can click on for greater detail, shows that Cibox Inter@ctive had €3.81m in debt in June 2024; about the same as the year before. However, it does have €1.40m in cash offsetting this, leading to net debt of about €2.41m.

A Look At Cibox Inter@ctive's Liabilities

We can see from the most recent balance sheet that Cibox Inter@ctive had liabilities of €6.02m falling due within a year, and liabilities of €1.37m due beyond that. Offsetting these obligations, it had cash of €1.40m as well as receivables valued at €2.67m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €3.31m.

Cibox Inter@ctive has a market capitalization of €6.53m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Cibox Inter@ctive will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Cibox Inter@ctive made a loss at the EBIT level, and saw its revenue drop to €6.3m, which is a fall of 37%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Cibox Inter@ctive's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable €1.8m at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled €2.0m 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. Be aware that Cibox Inter@ctive is showing 5 warning signs in our investment analysis , and 4 of those shouldn't be ignored...

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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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.