Is Connexa Sports Technologies (NASDAQ:YYAI) A Risky Investment?

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.' 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 Connexa Sports Technologies Inc. (NASDAQ:YYAI) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Connexa Sports Technologies

How Much Debt Does Connexa Sports Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that as of January 2024 Connexa Sports Technologies had US$5.72m of debt, an increase on US$2.30m, over one year. However, its balance sheet shows it holds US$17.2m in cash, so it actually has US$11.5m net cash.

How Strong Is Connexa Sports Technologies' Balance Sheet?

The latest balance sheet data shows that Connexa Sports Technologies had liabilities of US$16.5m due within a year, and liabilities of US$1.24m falling due after that. Offsetting these obligations, it had cash of US$17.2m as well as receivables valued at US$336.1k due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Connexa Sports Technologies' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$14.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Connexa Sports Technologies 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 it is Connexa Sports Technologies's earnings that will influence how the balance sheet holds up in the future. 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, Connexa Sports Technologies made a loss at the EBIT level, and saw its revenue drop to US$9.8m, which is a fall of 16%. We would much prefer see growth.

So How Risky Is Connexa Sports Technologies?

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 Connexa Sports Technologies had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$2.3m of cash and made a loss of US$9.8m. While this does make the company a bit risky, it's important to remember it has net cash of US$11.5m. That kitty means the company can keep spending for growth for at least two years, at current rates. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. We've identified 4 warning signs with Connexa Sports Technologies (at least 3 which shouldn't be ignored) , and understanding them should be part of your investment process.

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.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com