Stock Analysis

Does Biotricity (NASDAQ:BTCY) Have A Healthy Balance Sheet?

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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Biotricity, Inc. (NASDAQ:BTCY) makes use of debt. But is this debt a concern to shareholders?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Biotricity

What Is Biotricity's Debt?

The image below, which you can click on for greater detail, shows that Biotricity had debt of US$2.70m at the end of September 2021, a reduction from US$3.99m over a year. But it also has US$12.2m in cash to offset that, meaning it has US$9.48m net cash.

NasdaqCM:BTCY Debt to Equity History December 11th 2021

How Healthy Is Biotricity's Balance Sheet?

The latest balance sheet data shows that Biotricity had liabilities of US$5.21m due within a year, and liabilities of US$870.8k falling due after that. Offsetting this, it had US$12.2m in cash and US$1.64m in receivables that were due within 12 months. So it can boast US$7.74m more liquid assets than total liabilities.

This short term liquidity is a sign that Biotricity could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Biotricity has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Biotricity's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Biotricity wasn't profitable at an EBIT level, but managed to grow its revenue by 197%, to US$5.8m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Biotricity?

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 Biotricity had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$12m of cash and made a loss of US$27m. Given it only has net cash of US$9.48m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Biotricity's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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 5 warning signs for Biotricity (of which 1 doesn't sit too well with us!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Valuation is complex, but we're helping make it simple.

Find out whether Biotricity is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.