Is Verb Technology Company (NASDAQ:VERB) Using Too Much Debt?

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.' 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. We can see that Verb Technology Company, Inc. (NASDAQ:VERB) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Verb Technology Company

How Much Debt Does Verb Technology Company Carry?

As you can see below, Verb Technology Company had US$2.77m of debt at September 2021, down from US$4.94m a year prior. However, its balance sheet shows it holds US$3.66m in cash, so it actually has US$890.0k net cash.

How Strong Is Verb Technology Company's Balance Sheet?

We can see from the most recent balance sheet that Verb Technology Company had liabilities of US$18.1m falling due within a year, and liabilities of US$3.34m due beyond that. Offsetting these obligations, it had cash of US$3.66m as well as receivables valued at US$1.49m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$16.3m.

Since publicly traded Verb Technology Company shares are worth a total of US$119.1m, 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, 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're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Verb Technology Company had a loss before interest and tax, and actually shrunk its revenue by 4.2%, 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 in the last year Verb Technology Company had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$27m and booked a US$42m accounting loss. Given it only has net cash of US$890.0k, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 4 warning signs with Verb Technology Company (at least 2 which are potentially serious) , and understanding them should be part of your investment process.

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.