Is Urbanimmersive (CVE:UI) Weighed On By Its Debt Load?
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 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. We can see that Urbanimmersive Inc. (CVE:UI) does use debt in its business. But is this debt a concern to shareholders?
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Urbanimmersive
What Is Urbanimmersive's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 Urbanimmersive had CA$3.57m of debt, an increase on CA$334.1k, over one year. However, it does have CA$421.7k in cash offsetting this, leading to net debt of about CA$3.15m.
A Look At Urbanimmersive's Liabilities
According to the last reported balance sheet, Urbanimmersive had liabilities of CA$861.4k due within 12 months, and liabilities of CA$5.10m due beyond 12 months. Offsetting this, it had CA$421.7k in cash and CA$211.1k in receivables that were due within 12 months. So its liabilities total CA$5.33m more than the combination of its cash and short-term receivables.
This deficit is considerable relative to its market capitalization of CA$5.56m, so it does suggest shareholders should keep an eye on Urbanimmersive's use of debt. This suggests shareholders would heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is Urbanimmersive's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.
In the last year Urbanimmersive managed to grow its revenue by 179%, to CA$4.4m. So its pretty obvious shareholders are hoping for more growth!
Caveat Emptor
Even though Urbanimmersive managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost CA$401k at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CA$272k of cash over the last year. So suffice it to say we do consider the stock to be risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Urbanimmersive insider transactions.
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.
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