Yahoo Finance Is Intouch Insight (CVE:INX) Using Debt Sensibly?
Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Intouch Insight Ltd. (CVE:INX) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Intouch Insight
What Is Intouch Insight's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Intouch Insight had CA$70.5k of debt in June 2019, down from CA$343.8k, one year before. But on the other hand it also has CA$386.4k in cash, leading to a CA$315.9k net cash position.
How Healthy Is Intouch Insight's Balance Sheet?
According to the last reported balance sheet, Intouch Insight had liabilities of CA$1.67m due within 12 months, and liabilities of CA$437.9k due beyond 12 months. Offsetting this, it had CA$386.4k in cash and CA$3.25m in receivables that were due within 12 months. So it actually has CA$1.53m more liquid assets than total liabilities.
This surplus suggests that Intouch Insight is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Intouch Insight has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Intouch Insight will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year Intouch Insight managed to grow its revenue by 20%, to CA$17m. With any luck the company will be able to grow its way to profitability.
So How Risky Is Intouch Insight?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Intouch Insight lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$1.5m and booked a CA$1.6m accounting loss. With only CA$386k on the balance sheet, it would appear that its going to need to raise capital again soon. Intouch Insight's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. 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 Intouch Insight 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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