Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that SKYX Platforms Corp. (NASDAQ:SKYX) does use debt in its business. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
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 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. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for SKYX Platforms
What Is SKYX Platforms's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2024 SKYX Platforms had US$16.8m of debt, an increase on US$11.8m, over one year. However, it also had US$14.1m in cash, and so its net debt is US$2.67m.
How Healthy Is SKYX Platforms' Balance Sheet?
We can see from the most recent balance sheet that SKYX Platforms had liabilities of US$24.3m falling due within a year, and liabilities of US$36.4m due beyond that. Offsetting this, it had US$14.1m in cash and US$3.93m in receivables that were due within 12 months. So its liabilities total US$42.6m more than the combination of its cash and short-term receivables.
This deficit isn't so bad because SKYX Platforms is worth US$106.2m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. 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 ultimately the future profitability of the business will decide if SKYX Platforms can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year SKYX Platforms wasn't profitable at an EBIT level, but managed to grow its revenue by 221,572%, to US$78m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!
Caveat Emptor
Despite the top line growth, SKYX Platforms still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$39m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$15m of cash over the last year. So suffice it to say we consider the stock very risky. 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. For example - SKYX Platforms has 3 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.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About NasdaqCM:SKYX
Undervalued with mediocre balance sheet.
