Yahoo Finance Does Harvest One Cannabis (CVE:HVT) Have A Healthy Balance Sheet?
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. As with many other companies Harvest One Cannabis Inc. (CVE:HVT) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Harvest One Cannabis
How Much Debt Does Harvest One Cannabis Carry?
The image below, which you can click on for greater detail, shows that Harvest One Cannabis had debt of CA$1.92m at the end of March 2021, a reduction from CA$3.93m over a year. However, it does have CA$7.16m in cash offsetting this, leading to net cash of CA$5.23m.
How Healthy Is Harvest One Cannabis' Balance Sheet?
We can see from the most recent balance sheet that Harvest One Cannabis had liabilities of CA$8.67m falling due within a year, and liabilities of CA$2.06m due beyond that. On the other hand, it had cash of CA$7.16m and CA$3.23m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$347.0k.
This state of affairs indicates that Harvest One Cannabis' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CA$22.7m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Harvest One Cannabis also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Harvest One Cannabis's earnings that will influence how the balance sheet holds up in the future. 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.
Over 12 months, Harvest One Cannabis reported revenue of CA$8.7m, which is a gain of 183%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth
So How Risky Is Harvest One Cannabis?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Harvest One Cannabis had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$9.8m of cash and made a loss of CA$28m. Given it only has net cash of CA$5.23m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Harvest One Cannabis has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Harvest One Cannabis has 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.
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.
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. 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.
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