Me Today (NZSE:MEE) Is Carrying A Fair Bit Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Me Today Limited (NZSE:MEE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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 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 Me Today

How Much Debt Does Me Today Carry?

The image below, which you can click on for greater detail, shows that Me Today had debt of NZ$12.2m at the end of June 2022, a reduction from NZ$13.2m over a year. However, because it has a cash reserve of NZ$5.37m, its net debt is less, at about NZ$6.86m.

How Healthy Is Me Today's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Me Today had liabilities of NZ$3.02m due within 12 months and liabilities of NZ$12.3m due beyond that. On the other hand, it had cash of NZ$5.37m and NZ$1.23m worth of receivables due within a year. So it has liabilities totalling NZ$8.75m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Me Today has a market capitalization of NZ$21.4m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is Me Today'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.

Over 12 months, Me Today reported revenue of NZ$6.6m, which is a gain of 209%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

Caveat Emptor

While we can certainly appreciate Me Today's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Its EBIT loss was a whopping NZ$8.2m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through NZ$9.5m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. 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 6 warning signs for Me Today (of which 4 are a bit unpleasant!) you should know about.

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.

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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.