CXApp (NASDAQ:CXAI) Is Carrying A Fair Bit Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that CXApp Inc. (NASDAQ:CXAI) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for CXApp

What Is CXApp's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 CXApp had US$6.56m of debt, an increase on none, over one year. However, it also had US$5.08m in cash, and so its net debt is US$1.48m.

How Strong Is CXApp's Balance Sheet?

We can see from the most recent balance sheet that CXApp had liabilities of US$13.4m falling due within a year, and liabilities of US$3.88m due beyond that. On the other hand, it had cash of US$5.08m and US$461.0k worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$11.8m.

CXApp has a market capitalization of US$20.3m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine CXApp's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year CXApp had a loss before interest and tax, and actually shrunk its revenue by 5.8%, to US$7.2m. We would much prefer see growth.

Caveat Emptor

Importantly, CXApp had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$14m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$8.5m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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 instance, we've identified 4 warning signs for CXApp that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.