Does Beeks Financial Cloud Group (LON:BKS) Have A Healthy Balance Sheet?

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. We can see that Beeks Financial Cloud Group plc (LON:BKS) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. 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.

See our latest analysis for Beeks Financial Cloud Group

What Is Beeks Financial Cloud Group's Net Debt?

The image below, which you can click on for greater detail, shows that Beeks Financial Cloud Group had debt of UK£2.09m at the end of December 2022, a reduction from UK£4.83m over a year. However, its balance sheet shows it holds UK£6.70m in cash, so it actually has UK£4.61m net cash.

A Look At Beeks Financial Cloud Group's Liabilities

According to the last reported balance sheet, Beeks Financial Cloud Group had liabilities of UK£7.66m due within 12 months, and liabilities of UK£5.64m due beyond 12 months. Offsetting this, it had UK£6.70m in cash and UK£6.20m in receivables that were due within 12 months. So its liabilities total UK£407.0k more than the combination of its cash and short-term receivables.

This state of affairs indicates that Beeks Financial Cloud Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the UK£75.4m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Beeks Financial Cloud Group also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Beeks Financial Cloud Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Beeks Financial Cloud Group wasn't profitable at an EBIT level, but managed to grow its revenue by 49%, to UK£21m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Beeks Financial Cloud Group?

Although Beeks Financial Cloud Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of UK£581k. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. One positive is that Beeks Financial Cloud Group is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. 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 - Beeks Financial Cloud Group has 2 warning signs we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.