Does Verb Technology Company (NASDAQ:VERB) Have A Healthy Balance Sheet?

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 can see that Verb Technology Company, Inc. (NASDAQ:VERB) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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. 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 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 Verb Technology Company

How Much Debt Does Verb Technology Company Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 Verb Technology Company had US$4.81m of debt, an increase on US$3.27m, over one year. But on the other hand it also has US$6.45m in cash, leading to a US$1.64m net cash position.

How Healthy Is Verb Technology Company's Balance Sheet?

We can see from the most recent balance sheet that Verb Technology Company had liabilities of US$19.4m falling due within a year, and liabilities of US$3.50m due beyond that. Offsetting this, it had US$6.45m in cash and US$923.0k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$15.6m.

Given Verb Technology Company has a market capitalization of US$131.7m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Verb Technology Company 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 Verb Technology Company can strengthen its balance sheet over time. 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 Verb Technology Company had a loss before interest and tax, and actually shrunk its revenue by 4.7%, to US$9.9m. That's not what we would hope to see.

So How Risky Is Verb Technology Company?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Verb Technology Company 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$25m and booked a US$40m accounting loss. With only US$1.64m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 Verb Technology Company has 4 warning signs (and 2 which are significant) we think 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.
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