Would Cibox Inter@ctive (EPA:CIB) Be Better Off With Less Debt?

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.' 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, Cibox Inter@ctive ( EPA:CIB ) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt 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 June 2021 Cibox Inter@ctive had €3.53m of debt, an increase on €2.42m, over one year. However, it does have €2.98m in cash offsetting this, leading to net debt of about €545.0k. We would also like to highlight based on our communication with company representative Christophe Lahon that the company's mid-2021 cash position was negatively impacted by working capital increase in connection with their 2H21 activity.

How Healthy 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 €5.72m due within 12 months and liabilities of €38.0k due beyond that. Offsetting these obligations, it had cash of €2.98m as well as receivables valued at €2.98m due within 12 months. So it actually has €202.0k more liquid assets than total liabilities.

This state of affairs indicates that Cibox Inter@ctive's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €12.6m company is struggling for cash, we still think it's worth monitoring its balance sheet. 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 .

In the last year Cibox Inter@ctive wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to €13m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Cibox Inter@ctive had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost €197k at the EBIT level. On a more positive note, the company does have liquid assets, so it has a bit of time to improve its operations before the debt becomes an acute problem. But we'd want to see some positive free cashflow before spending much time on trying to understand the stock. This one is a bit too risky for our liking. 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. Be aware that Cibox Inter@ctive is showing 4 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet .

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.

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