Yahoo Finance Is Nanalysis Scientific (CVE:NSCI) Weighed On By Its Debt Load?
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 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 should shareholders be worried about its use of debt?
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Nanalysis Scientific
What Is Nanalysis Scientific's Net Debt?
As you can see below, at the end of June 2020, Nanalysis Scientific had CA$2.79m of debt, up from CA$1.13m a year ago. Click the image for more detail. But on the other hand it also has CA$4.81m in cash, leading to a CA$2.01m net cash position.
A Look At Nanalysis Scientific's Liabilities
We can see from the most recent balance sheet that Nanalysis Scientific had liabilities of CA$5.72m falling due within a year, and liabilities of CA$3.22m due beyond that. On the other hand, it had cash of CA$4.81m and CA$3.79m worth of receivables due within a year. So it has liabilities totalling CA$339.0k more than its cash and near-term receivables, combined.
This state of affairs indicates that Nanalysis Scientific's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CA$31.6m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Nanalysis Scientific boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Nanalysis Scientific will need earnings to service that debt. 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 21%. That makes us nervous, to say the least.
So How Risky Is Nanalysis Scientific?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Nanalysis Scientific lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$2.7m of cash and made a loss of CA$1.7m. However, it has net cash of CA$2.01m, so it has a bit of time before it will need more capital. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. Be aware that Nanalysis Scientific is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...
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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