Is Cambium Networks (NASDAQ:CMBM) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Cambium Networks Corporation (NASDAQ:CMBM) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Cambium Networks

What Is Cambium Networks's Debt?

You can click the graphic below for the historical numbers, but it shows that Cambium Networks had US$25.1m of debt in December 2023, down from US$27.6m, one year before. However, it does have US$18.7m in cash offsetting this, leading to net debt of about US$6.40m.

How Strong Is Cambium Networks' Balance Sheet?

The latest balance sheet data shows that Cambium Networks had liabilities of US$96.3m due within a year, and liabilities of US$40.6m falling due after that. Offsetting these obligations, it had cash of US$18.7m as well as receivables valued at US$64.3m due within 12 months. So it has liabilities totalling US$53.9m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Cambium Networks has a market capitalization of US$104.6m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Cambium Networks'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.

Over 12 months, Cambium Networks made a loss at the EBIT level, and saw its revenue drop to US$220m, which is a fall of 26%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Cambium Networks's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable US$61m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$28m of cash over the last year. So suffice it to say we consider the stock very risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Cambium Networks insider transactions.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.