Yahoo Finance Is Ackroo (CVE:AKR) A Risky Investment?
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 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 note that Ackroo Inc. (CVE:AKR) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Ackroo
What Is Ackroo's Net Debt?
As you can see below, at the end of September 2019, Ackroo had CA$3.43m of debt, up from CA$572.7k a year ago. Click the image for more detail. However, because it has a cash reserve of CA$423.2k, its net debt is less, at about CA$3.01m.
How Strong Is Ackroo's Balance Sheet?
We can see from the most recent balance sheet that Ackroo had liabilities of CA$954.2k falling due within a year, and liabilities of CA$3.39m due beyond that. Offsetting these obligations, it had cash of CA$423.2k as well as receivables valued at CA$513.9k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$3.41m.
Ackroo has a market capitalization of CA$12.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Ackroo 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 Ackroo wasn't profitable at an EBIT level, but managed to grow its revenue by18%, to CA$4.8m. We usually like to see faster growth from unprofitable companies, but each to their own.
Caveat Emptor
Importantly, Ackroo had negative earnings before interest and tax (EBIT), over the last year. Indeed, it lost CA$831k 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CA$2.4m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. For riskier companies like Ackroo I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
