Datapulse Technology (SGX:BKW) Is Using Debt Safely

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Datapulse Technology Limited (SGX:BKW) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Datapulse Technology

What Is Datapulse Technology's Net Debt?

As you can see below, at the end of January 2022, Datapulse Technology had S$22.2m of debt, up from S$21.3m a year ago. Click the image for more detail. But it also has S$32.8m in cash to offset that, meaning it has S$10.6m net cash.

How Strong Is Datapulse Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Datapulse Technology had liabilities of S$21.8m due within 12 months and liabilities of S$1.71m due beyond that. Offsetting these obligations, it had cash of S$32.8m as well as receivables valued at S$297.0k due within 12 months. So it can boast S$9.62m more liquid assets than total liabilities.

This luscious liquidity implies that Datapulse Technology's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Datapulse Technology boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Datapulse Technology will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Datapulse Technology reported revenue of S$1.4m, which is a gain of 113%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Datapulse Technology?

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 Datapulse Technology had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through S$2.0m of cash and made a loss of S$3.7m. Given it only has net cash of S$10.6m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Datapulse Technology's revenue growth is hot to trot. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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 Datapulse Technology (of which 1 is concerning!) 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.