Is CleanBnB (BIT:CBB) Weighed On By Its Debt Load?

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.' 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. We note that CleanBnB S.p.A. (BIT:CBB) does have debt on its balance sheet. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for CleanBnB

How Much Debt Does CleanBnB Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 CleanBnB had €2.27m of debt, an increase on €250.0k, over one year. But on the other hand it also has €3.10m in cash, leading to a €830.9k net cash position.

How Strong Is CleanBnB's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CleanBnB had liabilities of €3.64m due within 12 months and liabilities of €617.8k due beyond that. On the other hand, it had cash of €3.10m and €503.7k worth of receivables due within a year. So it has liabilities totalling €650.8k more than its cash and near-term receivables, combined.

Since publicly traded CleanBnB shares are worth a total of €11.6m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, CleanBnB also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if CleanBnB can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year CleanBnB had a loss before interest and tax, and actually shrunk its revenue by 32%, to €2.2m. That makes us nervous, to say the least.

So How Risky Is CleanBnB?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year CleanBnB had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €2.2m and booked a €2.0m accounting loss. But at least it has €830.9k on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. To that end, you should learn about the 4 warning signs we've spotted with CleanBnB (including 1 which is a bit unpleasant) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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