Yahoo Finance Is LXRandCo (TSE:LXR) A Risky Investment?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, LXRandCo, Inc. (TSE:LXR) does carry debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 LXRandCo
What Is LXRandCo's Net Debt?
You can click the graphic below for the historical numbers, but it shows that LXRandCo had CA$4.43m of debt in December 2020, down from CA$8.04m, one year before. However, it does have CA$7.29m in cash offsetting this, leading to net cash of CA$2.86m.
A Look At LXRandCo's Liabilities
According to the last reported balance sheet, LXRandCo had liabilities of CA$3.93m due within 12 months, and liabilities of CA$6.85m due beyond 12 months. Offsetting this, it had CA$7.29m in cash and CA$1.73m in receivables that were due within 12 months. So it has liabilities totalling CA$1.76m more than its cash and near-term receivables, combined.
Given LXRandCo has a market capitalization of CA$11.1m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, LXRandCo also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is LXRandCo's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Over 12 months, LXRandCo made a loss at the EBIT level, and saw its revenue drop to CA$14m, which is a fall of 66%. That makes us nervous, to say the least.
So How Risky Is LXRandCo?
Statistically speaking companies that lose money are riskier than those that make money. And in the last year LXRandCo had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CA$1.5m of cash and made a loss of CA$7.7m. With only CA$2.86m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for LXRandCo (of which 2 are potentially serious!) 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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