Warren Buffett said: “Volatility is far from synonymous with risk. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Like many other companies ColisPal Logistics Inc. (CSE:PKG) uses debt. But does this debt worry shareholders?
When is debt dangerous?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.
See our latest analysis for ParcelPal Logistics
What is ParcelPal Logistics’ net debt?
You can click on the chart below for historical numbers, but it shows that as of December 2021, ParcelPal Logistics had C$2.50 million in debt, an increase of C$1.59 million, on a year. However, he has CA$552,000 in cash to offset this, resulting in a net debt of approximately CA$1.94 million.
How strong is ParcelPal Logistics’ balance sheet?
The latest balance sheet data shows that ParcelPal Logistics had liabilities of C$4.88 million due within one year, and liabilities of C$404.9,000 falling due thereafter. In compensation for these obligations, it had cash of CA$552.0 k as well as receivables of a value of CA$202.1 k maturing within 12 months. Thus, its liabilities total C$4.53 million more than the combination of its cash and short-term receivables.
This deficit is considerable compared to its market capitalization of 5.14 million Canadian dollars, so it suggests that shareholders monitor the use of debt by ParcelPal Logistics. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet quickly. When analyzing debt levels, the balance sheet is the obvious starting point. But it is the profits of ParcelPal Logistics that will influence the balance sheet in the future. So, if you want to know more about its earnings, it may be worth checking out this graph of its long-term trend.
Last year, ParcelPal Logistics was unprofitable on an EBIT basis, but managed to grow revenue by 19% to C$7.5 million. We generally like to see faster growth from unprofitable businesses, but each in its own way.
It is important to note that ParcelPal Logistics recorded a loss of earnings before interest and taxes (EBIT) over the past year. Its EBIT loss was C$3.1 million. Considering that alongside the liabilities mentioned above, this doesn’t give us much confidence that the company should use so much debt. Quite frankly, we think the track record falls short, although it could improve over time. However, it doesn’t help that he’s burned C$1.1 million in cash over the past year. In short, it’s a really risky title. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. For example, we have identified 5 warning signs for ParcelPal Logistics (4 make us uncomfortable) that you should be aware of.
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.