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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk. 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. Importantly, SCWorx Corp. (NASDAQ:WORX) does carry 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.
Check out our latest analysis for SCWorx
How Much Debt Does SCWorx Carry?
You can click the graphic below for the historical numbers, but it shows that SCWorx had US$192.4k of debt in June 2019, down from US$1.47m, one year before. But on the other hand it also has US$1.33m in cash, leading to a US$1.14m net cash position.
A Look At SCWorx's Liabilities
Zooming in on the latest balance sheet data, we can see that SCWorx had liabilities of US$3.23m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of US$1.33m as well as receivables valued at US$1.16m due within 12 months. So it has liabilities totalling US$729.4k more than its cash and near-term receivables, combined.
Given SCWorx has a market capitalization of US$23.4m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, SCWorx boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since SCWorx will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Over 12 months, SCWorx reported revenue of US$4.4m, which is a gain of 25%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.