Yahoo Finance Is CanadaBis Capital (CVE:CANB) Weighed On By Its Debt Load?
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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies CanadaBis Capital Inc. (CVE:CANB) makes use of debt. But the more important question is: how much risk is that debt creating?
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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for CanadaBis Capital
What Is CanadaBis Capital's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of April 2019 CanadaBis Capital had CA$881.5k of debt, an increase on CA$494.5k, over one year. However, its balance sheet shows it holds CA$1.84m in cash, so it actually has CA$957.3k net cash.
A Look At CanadaBis Capital's Liabilities
We can see from the most recent balance sheet that CanadaBis Capital had liabilities of CA$319.8k falling due within a year, and liabilities of CA$881.5k due beyond that. On the other hand, it had cash of CA$1.84m and CA$41.7k worth of receivables due within a year. So it actually has CA$679.2k more liquid assets than total liabilities.
Having regard to CanadaBis Capital's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CA$36.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that CanadaBis Capital has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since CanadaBis Capital 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.
It seems likely shareholders hope that CanadaBis Capital can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.
So How Risky Is CanadaBis Capital?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year CanadaBis Capital had negative earnings before interest and tax (EBIT), truth be told. And over the same period it saw negative free cash outflow of CA$2.7m and booked a CA$4.8m accounting loss. With only CA$1.8m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 CanadaBis Capital insider transactions.
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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