cbdMD (NYSEMKT:YCBD) Has Debt But No Earnings; Should You Worry?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies cbdMD, Inc. (NYSEMKT:YCBD) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for cbdMD

How Much Debt Does cbdMD Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 cbdMD had US$1.67m of debt, an increase on US$462.6k, over one year. However, it does have US$29.0m in cash offsetting this, leading to net cash of US$27.4m.

How Healthy Is cbdMD's Balance Sheet?

We can see from the most recent balance sheet that cbdMD had liabilities of US$6.74m falling due within a year, and liabilities of US$31.6m due beyond that. On the other hand, it had cash of US$29.0m and US$1.02m worth of receivables due within a year. So its liabilities total US$8.29m more than the combination of its cash and short-term receivables.

Given cbdMD has a market capitalization of US$213.9m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, cbdMD 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 cbdMD can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year cbdMD wasn't profitable at an EBIT level, but managed to grow its revenue by 32%, to US$44m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is cbdMD?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months cbdMD lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$8.8m and booked a US$10m accounting loss. Given it only has net cash of US$27.4m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, cbdMD may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - cbdMD has 2 warning signs we think you should be aware of.

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. 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.
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