Do direct communication solutions (CSE: DCSI) have a healthy track record?
Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say this when he says “The biggest risk in investing is not price volatility, but if you will suffer a loss. permanent capital “. When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. We notice that Direct Communication Solutions, Inc. (CSE: DCSI) has debt on its balance sheet. But the real question is whether this debt makes the business risky.
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Check out our latest review for direct communication solutions
What is the debt of Direct Communication Solutions?
As you can see below, at the end of September 2021, Direct Communication Solutions had a debt of US $ 1.61 million, up from $ 899.2k a year ago. Click on the image for more details. However, it has US $ 451.4K in cash offsetting this, leading to net debt of around US $ 1.16M.
How healthy is Direct Communication Solutions’ balance sheet?
Zooming in on the latest balance sheet data, we can see that Direct Communication Solutions had a liability of US $ 3.89 million owed within 12 months and no liabilities owed beyond. On the other hand, he had cash of US $ 451.4K and receivables worth US $ 1.52 million within one year. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by US $ 1.92 million.
Direct Communication Solutions has a market capitalization of US $ 6.17 million, so it could most likely raise funds to improve its balance sheet, should the need arise. But it is clear that it is absolutely necessary to take a close look at whether it can manage its debt without dilution. There is no doubt that we learn the most about debt from the balance sheet. But it is the results of Direct Communication Solutions that will influence the balance sheet in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
Year over 12 months, Direct Communication Solutions reported revenue of US $ 15 million, a gain of 5.2%, although it reported no earnings before interest and taxes. We usually like to see unprofitable businesses growing faster, but each for their own.
It is important to note that Direct Communication Solutions recorded a loss of profit before interest and taxes (EBIT) during the last year. Its EBIT loss was US $ 2.2 million. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. We therefore believe that its record is a bit strained, but not irreparable. However, it doesn’t help that he spent $ 2.8 million in cash in the past year. Suffice it to say that we consider the title to be very risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. To this end, you should inquire about the 5 warning signs we spotted with Direct Communication Solutions (including 3 that should not be overlooked).
If you want to invest in companies that can generate profits without the burden of debt, check out this free list of growing companies that have net cash on the balance sheet.
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