We Think Cibox Inter@ctive (EPA:CIB) Can Stay On Top Of Its Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. Importantly, Cibox Inter@ctive (EPA:CIB) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Cibox Inter@ctive

How Much Debt Does Cibox Inter@ctive Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Cibox Inter@ctive had €6.16m of debt, an increase on €818.0k, over one year. However, it does have €6.28m in cash offsetting this, leading to net cash of €120.0k.

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

Zooming in on the latest balance sheet data, we can see that Cibox Inter@ctive had liabilities of €7.72m due within 12 months and liabilities of €32.0k due beyond that. On the other hand, it had cash of €6.28m and €4.52m worth of receivables due within a year. So it can boast €3.06m 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!

It was also good to see that despite losing money on the EBIT line last year, Cibox Inter@ctive turned things around in the last 12 months, delivering and EBIT of €484k. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Cibox Inter@ctive will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

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. Over the last year, Cibox Inter@ctive saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing up

While it is always sensible to investigate a company's debt, in this case Cibox Inter@ctive has €120.0k in net cash and a decent-looking balance sheet. So we don't have any problem with Cibox Inter@ctive's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for Cibox Inter@ctive (3 are concerning!) that you should be aware of before investing here.

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. 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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