Does SRAX (NASDAQ:SRAX) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, SRAX, Inc. (NASDAQ:SRAX) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 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, 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.

See our latest analysis for SRAX

What Is SRAX's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 SRAX had US$4.23m of debt, an increase on US$3.02m, over one year. But on the other hand it also has US$31.5m in cash, leading to a US$27.3m net cash position.

A Look At SRAX's Liabilities

According to the last reported balance sheet, SRAX had liabilities of US$19.0m due within 12 months, and liabilities of US$344.0k due beyond 12 months. Offsetting this, it had US$31.5m in cash and US$3.31m in receivables that were due within 12 months. So it can boast US$15.5m more liquid assets than total liabilities.

This surplus suggests that SRAX has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, SRAX 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 it is future earnings, more than anything, that will determine SRAX's ability to maintain a healthy balance sheet going forward. 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 SRAX wasn't profitable at an EBIT level, but managed to grow its revenue by 311%, to US$14m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is SRAX?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that SRAX had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$18m and booked a US$23m accounting loss. Given it only has net cash of US$27.3m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, SRAX's revenue growth is hot to trot. High growth pre-profit companies may well be 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. We've identified 3 warning signs with SRAX (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

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.
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