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 CareCloud, Inc. (NASDAQ:CCLD) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for CareCloud
What Is CareCloud's Net Debt?
As you can see below, at the end of June 2023, CareCloud had US$10.0m of debt, up from US$7.03m a year ago. Click the image for more detail. However, it does have US$7.67m in cash offsetting this, leading to net debt of about US$2.35m.
How Strong Is CareCloud's Balance Sheet?
We can see from the most recent balance sheet that CareCloud had liabilities of US$19.6m falling due within a year, and liabilities of US$13.7m due beyond that. Offsetting these obligations, it had cash of US$7.67m as well as receivables valued at US$16.9m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$8.80m.
CareCloud has a market capitalization of US$17.0m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine CareCloud's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, CareCloud made a loss at the EBIT level, and saw its revenue drop to US$126m, which is a fall of 15%. That's not what we would hope to see.
Caveat Emptor
While CareCloud's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$793k. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$16m into a profit. So in short it's a really risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for CareCloud 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.
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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.
About NasdaqGM:CCLD
CareCloud
A healthcare information technology (IT) company, provides a suite of cloud-based solutions and related business services to healthcare providers and hospitals primarily in the United States.
Very undervalued with excellent balance sheet.