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Is Biotricity (NASDAQ:BTCY) Weighed On By Its Debt Load?

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  • BTCY

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Biotricity, Inc. (NASDAQ:BTCY) does use debt in its business. But the real question is whether this debt is making the company risky.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 Biotricity

What Is Biotricity's Debt?

As you can see below, Biotricity had US$2.70m of debt at September 2021, down from US$3.99m a year prior. But it also has US$12.2m in cash to offset that, meaning it has US$9.48m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

How Strong Is Biotricity's Balance Sheet?

The latest balance sheet data shows that Biotricity had liabilities of US$5.21m due within a year, and liabilities of US$870.8k falling due after that. On the other hand, it had cash of US$12.2m and US$1.64m worth of receivables due within a year. So it can boast US$7.74m more liquid assets than total liabilities.

This surplus suggests that Biotricity has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Biotricity 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 Biotricity'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, Biotricity reported revenue of US$5.8m, which is a gain of 197%, although it did not report any earnings before interest and tax. So its pretty obvious shareholders are hoping for more growth!

So How Risky Is Biotricity?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Biotricity had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$12m of cash and made a loss of US$27m. Given it only has net cash of US$9.48m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Biotricity has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 5 warning signs we've spotted with Biotricity (including 1 which shouldn't be ignored) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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