Yahoo Finance Corero Network Security (LON:CNS) Has Debt But No Earnings; Should You Worry?
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, Corero Network Security plc (LON:CNS) does carry debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Corero Network Security
What Is Corero Network Security's Debt?
You can click the graphic below for the historical numbers, but it shows that Corero Network Security had US$3.24m of debt in June 2019, down from US$3.99m, one year before. However, it does have US$6.87m in cash offsetting this, leading to net cash of US$3.63m.
How Healthy Is Corero Network Security's Balance Sheet?
According to the last reported balance sheet, Corero Network Security had liabilities of US$5.36m due within 12 months, and liabilities of US$3.49m due beyond 12 months. Offsetting these obligations, it had cash of US$6.87m as well as receivables valued at US$1.41m due within 12 months. So it has liabilities totalling US$579.0k more than its cash and near-term receivables, combined.
Since publicly traded Corero Network Security shares are worth a total of US$17.3m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Corero Network Security 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 future earnings, more than anything, that will determine Corero Network Security's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Corero Network Security reported revenue of US$9.1m, which is a gain of 4.3%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Corero Network Security?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Corero Network Security had negative earnings before interest and tax (EBIT), truth be told. Indeed, in that time it burnt through US$3.3m of cash and made a loss of US$6.2m. However, it has net cash of US$3.63m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Corero Network Security's profit, revenue, and operating cashflow have changed over the last few years.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.
