David Iben put it well when he said, “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Above all, Xebec Adsorption Inc. (TSE: XBC) carries debt. But does this debt concern shareholders?
When is debt dangerous?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. When we look at debt levels, we first consider both liquidity and debt levels.
Check out our latest review for Xebec Adsorption
What is Xebec Adsorption’s net debt?
You can click on the graph below for historical figures, but it shows that as of June 2021, Xebec Adsorption had a debt of C $ 50.4 million, an increase from C $ 12.5 million, over a year. But on the other hand, he also has CA $ 70.3 million in cash, which leads to a net cash position of CA $ 19.8 million.
A look at the responsibilities of Xebec Adsorption
We can see from the most recent balance sheet that Xebec Adsorption had liabilities of C $ 51.7 million due within one year and liabilities of C $ 49.1 million due beyond. . On the other hand, it had C $ 70.3 million in cash and C $ 31.8 million in receivables due within a year. These liquid assets therefore correspond roughly to the total liabilities.
Considering the size of Xebec Adsorption, it appears that its liquid assets are well balanced with its total liabilities. So the C $ 443.5 million company is highly unlikely to run out of cash, but it’s still worth keeping an eye on the balance sheet. In short, Xebec Adsorption claims net cash, so it’s fair to say that it doesn’t have a lot of debt! When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Xebec Adsorption can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over the past year, Xebec Adsorption has not been profitable in terms of EBIT, but has managed to increase sales by 31%, to C $ 77 million. Hopefully the business will be able to move towards profitability.
So how risky is the adsorption of Xebec?
We are convinced that loss-making companies are, in general, riskier than profitable companies. And the point is that over the past twelve months, Xebec Adsorption has lost money in earnings before interest and taxes (EBIT). And during the same period, it recorded negative free cash outflows of C $ 41 million and a book loss of C $ 47 million. With only Cdn $ 19.8 million in net cash, the company may need to raise more capital if it doesn’t break even soon. Xebec Adsorption’s revenue growth has shone over the past year, so it may well be able to turn a profit in due course. By investing before these profits, shareholders take more risk in the hope of greater rewards. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for Xebec Adsorption you should know.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.
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