CyanConnode Holdings (LON:CYAN) Is Carrying A Fair Bit Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, CyanConnode Holdings plc (LON:CYAN) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for CyanConnode Holdings

What Is CyanConnode Holdings's Debt?

The image below, which you can click on for greater detail, shows that at September 2021 CyanConnode Holdings had debt of UK£2.59m, up from UK£2.12m in one year. However, it also had UK£1.74m in cash, and so its net debt is UK£853.0k.

How Healthy Is CyanConnode Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CyanConnode Holdings had liabilities of UK£6.23m due within 12 months and liabilities of UK£779.0k due beyond that. On the other hand, it had cash of UK£1.74m and UK£7.84m worth of receivables due within a year. So it can boast UK£2.57m more liquid assets than total liabilities.

This surplus suggests that CyanConnode Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 CyanConnode Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, CyanConnode Holdings reported revenue of UK£9.0m, which is a gain of 114%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Despite the top line growth, CyanConnode Holdings still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at UK£2.3m. 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. Having said that the rate of revenue growth will likely impress the market, greatly facilitating any potential capital raising, if required. So it's risky, but with some potential. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for CyanConnode Holdings that you should be aware of before investing here.

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.