Cipia Vision (TLV:CPIA) Has Debt But No Earnings; Should You Worry?

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 Cipia Vision Ltd (TLV:CPIA) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Cipia Vision's Net Debt?

As you can see below, at the end of December 2024, Cipia Vision had US$2.80m of debt, up from US$487.0k a year ago. Click the image for more detail. But it also has US$5.38m in cash to offset that, meaning it has US$2.58m net cash.

How Strong Is Cipia Vision's Balance Sheet?

According to the last reported balance sheet, Cipia Vision had liabilities of US$4.25m due within 12 months, and liabilities of US$2.54m due beyond 12 months. Offsetting these obligations, it had cash of US$5.38m as well as receivables valued at US$3.78m due within 12 months. So it can boast US$2.37m more liquid assets than total liabilities.

This short term liquidity is a sign that Cipia Vision could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Cipia Vision boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Cipia Vision's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

See our latest analysis for Cipia Vision

Over 12 months, Cipia Vision reported revenue of US$5.7m, which is a gain of 6.5%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Cipia Vision?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Cipia Vision had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$8.5m and booked a US$8.0m accounting loss. Given it only has net cash of US$2.58m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Cipia Vision (of which 2 shouldn't be ignored!) you should know about.

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. 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.