Stock Analysis

Is Biotricity (NASDAQ:BTCY) Using Debt In A Risky Way?

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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We note that Biotricity, Inc. (NASDAQ:BTCY) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Biotricity

What Is Biotricity's Debt?

As you can see below, at the end of December 2021, Biotricity had US$13.6m of debt, up from US$7.27m a year ago. Click the image for more detail. But it also has US$17.3m in cash to offset that, meaning it has US$3.69m net cash.

NasdaqCM:BTCY Debt to Equity History April 9th 2022

How Healthy Is Biotricity's Balance Sheet?

According to the last reported balance sheet, Biotricity had liabilities of US$4.83m due within 12 months, and liabilities of US$13.9m due beyond 12 months. Offsetting these obligations, it had cash of US$17.3m as well as receivables valued at US$1.99m due within 12 months. So it can boast US$523.6k more liquid assets than total liabilities.

Having regard to Biotricity's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$102.0m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Biotricity boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Biotricity can strengthen its balance sheet over time. 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 161%, to US$6.7m. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Biotricity?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Biotricity had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$14m of cash and made a loss of US$30m. With only US$3.69m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that Biotricity has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. 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. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with Biotricity .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.