Does Cibox Inter@ctive (EPA:CIB) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that Cibox Inter@ctive (EPA:CIB) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Cibox Inter@ctive

How Much Debt Does Cibox Inter@ctive Carry?

As you can see below, at the end of June 2020, Cibox Inter@ctive had €2.42m of debt, up from €866.0k a year ago. Click the image for more detail. But it also has €4.54m in cash to offset that, meaning it has €2.12m net cash.

How Healthy Is Cibox Inter@ctive's Balance Sheet?

We can see from the most recent balance sheet that Cibox Inter@ctive had liabilities of €4.15m falling due within a year, and liabilities of €414.0k due beyond that. Offsetting these obligations, it had cash of €4.54m as well as receivables valued at €2.10m due within 12 months. So it can boast €2.07m more liquid assets than total liabilities.

This surplus suggests that Cibox Inter@ctive has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Cibox Inter@ctive boasts net cash, so it's fair to say it does not have a heavy debt load!

We also note that Cibox Inter@ctive improved its EBIT from a last year's loss to a positive €460k. There's no doubt that we learn most about debt from the balance sheet. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Cibox Inter@ctive has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, Cibox Inter@ctive burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Cibox Inter@ctive has net cash of €2.12m, as well as more liquid assets than liabilities. So we don't have any problem with Cibox Inter@ctive's use of debt. 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. Be aware that Cibox Inter@ctive is showing 6 warning signs in our investment analysis , and 3 of those are potentially serious...

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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