Yahoo Finance Cloudcall Group (LON:CALL) Has Debt But No Earnings; Should You Worry?
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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Cloudcall Group plc (LON:CALL) does have debt on its balance sheet. 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. If things get really bad, the lenders can take control of the business. 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 Cloudcall Group
What Is Cloudcall Group's Net Debt?
The image below, which you can click on for greater detail, shows that at June 2021 Cloudcall Group had debt of UK£2.90m, up from UK£1.00m in one year. But on the other hand it also has UK£8.45m in cash, leading to a UK£5.55m net cash position.
A Look At Cloudcall Group's Liabilities
We can see from the most recent balance sheet that Cloudcall Group had liabilities of UK£3.53m falling due within a year, and liabilities of UK£4.17m due beyond that. Offsetting this, it had UK£8.45m in cash and UK£4.87m in receivables that were due within 12 months. So it can boast UK£5.62m more liquid assets than total liabilities.
It's good to see that Cloudcall Group has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Cloudcall Group has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Cloudcall 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.
In the last year Cloudcall Group wasn't profitable at an EBIT level, but managed to grow its revenue by 3.9%, to UK£12m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is Cloudcall Group?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Cloudcall Group had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through UK£7.9m of cash and made a loss of UK£7.1m. But the saving grace is the UK£5.55m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Cloudcall Group is showing 3 warning signs in our investment analysis , you should know about...
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.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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