Yahoo Finance Is Nanalysis Scientific (CVE:NSCI) Using Debt In A Risky Way?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Nanalysis Scientific Corp. (CVE:NSCI) makes use of debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.
View our latest analysis for Nanalysis Scientific
What Is Nanalysis Scientific's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2020 Nanalysis Scientific had CA$3.09m of debt, an increase on CA$973.0k, over one year. However, its balance sheet shows it holds CA$4.47m in cash, so it actually has CA$1.38m net cash.
How Healthy Is Nanalysis Scientific's Balance Sheet?
According to the last reported balance sheet, Nanalysis Scientific had liabilities of CA$5.65m due within 12 months, and liabilities of CA$3.53m due beyond 12 months. Offsetting this, it had CA$4.47m in cash and CA$2.66m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$2.05m.
Given Nanalysis Scientific has a market capitalization of CA$32.2m, 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. Despite its noteworthy liabilities, Nanalysis Scientific boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Nanalysis Scientific'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, Nanalysis Scientific made a loss at the EBIT level, and saw its revenue drop to CA$7.3m, which is a fall of 19%. We would much prefer see growth.
So How Risky Is Nanalysis Scientific?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that Nanalysis Scientific had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$2.0m of cash and made a loss of CA$2.5m. But at least it has CA$1.38m on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Nanalysis Scientific is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...
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.
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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