Is SilverSun Technologies (NASDAQ:SSNT) Using Debt In A Risky Way?

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 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. As with many other companies SilverSun Technologies, Inc. (NASDAQ:SSNT) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 SilverSun Technologies

What Is SilverSun Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 SilverSun Technologies had US$1.80m of debt, an increase on US$725.4k, over one year. However, its balance sheet shows it holds US$6.49m in cash, so it actually has US$4.69m net cash.

How Strong Is SilverSun Technologies' Balance Sheet?

The latest balance sheet data shows that SilverSun Technologies had liabilities of US$7.72m due within a year, and liabilities of US$1.57m falling due after that. On the other hand, it had cash of US$6.49m and US$2.38m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$426.1k.

Of course, SilverSun Technologies has a market capitalization of US$13.0m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, SilverSun Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is SilverSun Technologies's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, SilverSun Technologies saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is SilverSun Technologies?

While SilverSun Technologies lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$573k. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for SilverSun Technologies (of which 1 makes us a bit uncomfortable!) you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.