Is Creative Realities (NASDAQ:CREX) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. Importantly, Creative Realities, Inc. (NASDAQ:CREX) does carry debt. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Creative Realities Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Creative Realities had US$20.1m of debt, an increase on US$13.8m, over one year. However, it does have US$569.0k in cash offsetting this, leading to net debt of about US$19.5m.

A Look At Creative Realities' Liabilities

The latest balance sheet data shows that Creative Realities had liabilities of US$13.0m due within a year, and liabilities of US$21.2m falling due after that. Offsetting these obligations, it had cash of US$569.0k as well as receivables valued at US$10.6m due within 12 months. So its liabilities total US$23.1m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of US$26.5m, so it does suggest shareholders should keep an eye on Creative Realities' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Creative Realities'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.

Check out our latest analysis for Creative Realities

Over 12 months, Creative Realities made a loss at the EBIT level, and saw its revenue drop to US$48m, which is a fall of 6.2%. We would much prefer see growth.

Caveat Emptor

Importantly, Creative Realities had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$1.6m at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$2.6m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. We've identified 2 warning signs with Creative Realities , 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.