Yahoo Finance Is Cantaloupe (NASDAQ:CTLP) Using Too Much Debt?
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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Cantaloupe, Inc. (NASDAQ:CTLP) does carry debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. 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.
See our latest analysis for Cantaloupe
What Is Cantaloupe's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Cantaloupe had US$14.8m of debt in March 2022, down from US$17.5m, one year before. But it also has US$75.1m in cash to offset that, meaning it has US$60.3m net cash.
How Healthy Is Cantaloupe's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Cantaloupe had liabilities of US$66.9m due within 12 months and liabilities of US$17.0m due beyond that. Offsetting these obligations, it had cash of US$75.1m as well as receivables valued at US$36.4m due within 12 months. So it actually has US$27.6m more liquid assets than total liabilities.
This short term liquidity is a sign that Cantaloupe could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Cantaloupe boasts net cash, so it's fair to say it does not have a heavy debt load!
Although Cantaloupe made a loss at the EBIT level, last year, it was also good to see that it generated US$534k in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Cantaloupe's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Cantaloupe has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last year, Cantaloupe burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.
Summing up
While it is always sensible to investigate a company's debt, in this case Cantaloupe has US$60.3m in net cash and a decent-looking balance sheet. So we don't have any problem with Cantaloupe's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Cantaloupe you should know about.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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