Does Crexendo (NASDAQ:CXDO) Have A Healthy Balance Sheet?

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.' 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. We can see that Crexendo, Inc. (NASDAQ:CXDO) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

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What Is Crexendo's Net Debt?

As you can see below, Crexendo had US$1.84m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has US$4.88m in cash to offset that, meaning it has US$3.04m net cash.

How Healthy Is Crexendo's Balance Sheet?

The latest balance sheet data shows that Crexendo had liabilities of US$9.46m due within a year, and liabilities of US$521.0k falling due after that. Offsetting this, it had US$4.88m in cash and US$4.27m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$841.0k.

Having regard to Crexendo's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$49.2m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Crexendo also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Crexendo can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Crexendo wasn't profitable at an EBIT level, but managed to grow its revenue by 86%, to US$35m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Crexendo?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Crexendo had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$13m of cash and made a loss of US$2.8m. Given it only has net cash of US$3.04m, the company may need to raise more capital if it doesn't reach break-even soon. Crexendo's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 4 warning signs for Crexendo (1 makes us a bit uncomfortable) 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.