Yahoo Finance Novoheart Holdings (CVE:NVH) Is Using Debt Safely
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. We can see that Novoheart Holdings Inc. (CVE:NVH) does use debt in its business. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for Novoheart Holdings
What Is Novoheart Holdings's Net Debt?
The image below, which you can click on for greater detail, shows that at June 2019 Novoheart Holdings had debt of CA$1.68m, up from none in one year. But on the other hand it also has CA$23.4m in cash, leading to a CA$21.7m net cash position.
A Look At Novoheart Holdings's Liabilities
According to the last reported balance sheet, Novoheart Holdings had liabilities of CA$3.40m due within 12 months, and liabilities of CA$58.5k due beyond 12 months. On the other hand, it had cash of CA$23.4m and CA$166.0k worth of receivables due within a year. So it can boast CA$20.1m more liquid assets than total liabilities.
This surplus liquidity suggests that Novoheart Holdings's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, it seems its balance sheet is as strong as a black-belt karate master. Simply put, the fact that Novoheart Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Novoheart Holdings'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.
Given its lack of meaningful operating revenue, Novoheart Holdings shareholders no doubt hope it can fund itself until it has a profitable product.
So How Risky Is Novoheart Holdings?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that Novoheart Holdings had negative earnings before interest and tax (EBIT), over the last year. Indeed, in that time it burnt through CA$3.0m of cash and made a loss of CA$7.7m. But the saving grace is the CA$21.7m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Novoheart Holdings may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. For riskier companies like Novoheart Holdings I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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