Here's Why Onfolio Holdings (NASDAQ:ONFO) Can Afford Some Debt

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. As with many other companies Onfolio Holdings, Inc. (NASDAQ:ONFO) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Onfolio Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Onfolio Holdings had debt of US$1.98m, up from US$1.48m in one year. However, it also had US$666.1k in cash, and so its net debt is US$1.31m.

How Strong Is Onfolio Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Onfolio Holdings had liabilities of US$2.61m due within 12 months and liabilities of US$1.84m due beyond that. Offsetting these obligations, it had cash of US$666.1k as well as receivables valued at US$688.8k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$3.10m.

While this might seem like a lot, it is not so bad since Onfolio Holdings has a market capitalization of US$5.64m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Onfolio Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Onfolio Holdings

In the last year Onfolio Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 66%, to US$9.1m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Onfolio Holdings still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$2.5m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$882k of cash over the last year. So in short it's a really risky stock. 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. Be aware that Onfolio Holdings is showing 3 warning signs in our investment analysis , you should know about...

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.