Yahoo Finance Is Martello Technologies Group (CVE:MTLO) Using Debt In A Risky Way?
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Martello Technologies Group Inc. (CVE:MTLO) does carry debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Martello Technologies Group
How Much Debt Does Martello Technologies Group Carry?
You can click the graphic below for the historical numbers, but it shows that as of March 2019 Martello Technologies Group had CA$3.42m of debt, an increase on CA$801.7k, over one year. However, it does have CA$6.62m in cash offsetting this, leading to net cash of CA$3.20m.
How Strong Is Martello Technologies Group's Balance Sheet?
We can see from the most recent balance sheet that Martello Technologies Group had liabilities of CA$6.71m falling due within a year, and liabilities of CA$4.49m due beyond that. On the other hand, it had cash of CA$6.62m and CA$4.26m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$332.1k.
Having regard to Martello Technologies Group'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$74.9m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Martello Technologies Group 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 future earnings, more than anything, that will determine Martello Technologies Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Martello Technologies Group reported revenue of CA$10m, which is a gain of 103%. So its pretty obvious shareholders are hoping for more growth!
So How Risky Is Martello Technologies Group?
Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Martello Technologies Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CA$4.5m and booked a CA$5.4m accounting loss. But at least it has CA$6.6m on the balance sheet to spend on growth, near-term. Importantly, Martello Technologies Group's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. For riskier companies like Martello Technologies Group 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.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.
