Is FingerMotion (NASDAQ:FNGR) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that FingerMotion, Inc. (NASDAQ:FNGR) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for FingerMotion

How Much Debt Does FingerMotion Carry?

You can click the graphic below for the historical numbers, but it shows that as of February 2023 FingerMotion had US$3.26m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$9.24m in cash, so it actually has US$5.98m net cash.

A Look At FingerMotion's Liabilities

According to the last reported balance sheet, FingerMotion had liabilities of US$2.04m due within 12 months, and liabilities of US$2.54m due beyond 12 months. On the other hand, it had cash of US$9.24m and US$3.89m worth of receivables due within a year. So it can boast US$8.55m more liquid assets than total liabilities.

This short term liquidity is a sign that FingerMotion could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, FingerMotion 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 you can't view debt in total isolation; since FingerMotion will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year FingerMotion wasn't profitable at an EBIT level, but managed to grow its revenue by 49%, to US$34m. With any luck the company will be able to grow its way to profitability.

So How Risky Is FingerMotion?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that FingerMotion had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$8.7m of cash and made a loss of US$7.5m. With only US$5.98m on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, FingerMotion may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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, we've discovered 5 warning signs for FingerMotion (3 are significant!) that you should be aware of before investing here.

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.