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Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Calix, Inc. (NYSE:CALX) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for Calix
How Much Debt Does Calix Carry?
You can click the graphic below for the historical numbers, but it shows that Calix had US$5.16m of debt in September 2020, down from US$27.7m, one year before. But on the other hand it also has US$103.8m in cash, leading to a US$98.7m net cash position.
A Look At Calix's Liabilities
We can see from the most recent balance sheet that Calix had liabilities of US$92.7m falling due within a year, and liabilities of US$45.1m due beyond that. Offsetting these obligations, it had cash of US$103.8m as well as receivables valued at US$69.1m due within 12 months. So it actually has US$35.1m more liquid assets than total liabilities.
Having regard to Calix's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$1.86b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Calix has more cash than debt is arguably a good indication that it can manage its debt safely.
Although Calix made a loss at the EBIT level, last year, it was also good to see that it generated US$20m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Calix can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.