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

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Crexendo, Inc. (NASDAQ:CXDO) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Crexendo

What Is Crexendo's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2022 Crexendo had debt of US$3.11m, up from US$1.87m in one year. However, it does have US$5.48m in cash offsetting this, leading to net cash of US$2.37m.

How Healthy Is Crexendo's Balance Sheet?

According to the last reported balance sheet, Crexendo had liabilities of US$10.4m due within 12 months, and liabilities of US$3.78m due beyond 12 months. Offsetting this, it had US$5.48m in cash and US$4.25m in receivables that were due within 12 months. So it has liabilities totalling US$4.45m more than its cash and near-term receivables, combined.

Since publicly traded Crexendo shares are worth a total of US$40.1m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Crexendo boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. 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 34%, to US$38m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Crexendo?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Crexendo lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$700k of cash and made a loss of US$35m. Given it only has net cash of US$2.37m, 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, Crexendo may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Crexendo that you should be aware of before investing here.

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.