David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that Verb Technology Company, Inc. (NASDAQ:VERB) does use debt in its business. But the real question is whether this debt is making the company risky.
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.
How Much Debt Does Verb Technology Company Carry?
You can click the graphic below for the historical numbers, but it shows that Verb Technology Company had US$2.77m of debt in September 2021, down from US$4.94m, one year before. But on the other hand it also has US$3.66m in cash, leading to a US$890.0k net cash position.
How Healthy Is Verb Technology Company's Balance Sheet?
The latest balance sheet data shows that Verb Technology Company had liabilities of US$18.1m due within a year, and liabilities of US$3.34m falling due after that. On the other hand, it had cash of US$3.66m and US$1.49m worth of receivables due within a year. So its liabilities total US$16.3m more than the combination of its cash and short-term receivables.
Of course, Verb Technology Company has a market capitalization of US$98.0m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Verb Technology Company also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Verb Technology Company'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.
In the last year Verb Technology Company had a loss before interest and tax, and actually shrunk its revenue by 4.2%, to US$9.9m. We would much prefer see growth.
So How Risky Is Verb Technology Company?
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 Verb Technology Company lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$27m of cash and made a loss of US$42m. With only US$890.0k on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 5 warning signs for Verb Technology Company (2 are a bit concerning!) that you should be aware of before investing here.
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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