Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies cbdMD, Inc. (NYSEMKT:YCBD) 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for cbdMD

How Much Debt Does cbdMD Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 cbdMD had US$1.67m of debt, an increase on US$462.6k, over one year. But it also has US$29.0m in cash to offset that, meaning it has US$27.4m net cash.

A Look At cbdMD's Liabilities

Zooming in on the latest balance sheet data, we can see that cbdMD had liabilities of US$6.74m due within 12 months and liabilities of US$31.6m due beyond that. On the other hand, it had cash of US$29.0m and US$1.02m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$8.29m.

Given cbdMD has a market capitalization of US$191.9m, 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, cbdMD 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 ultimately the future profitability of the business will decide if cbdMD 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.

Over 12 months, cbdMD reported revenue of US$44m, which is a gain of 32%, 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.

So How Risky Is cbdMD?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year cbdMD had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$8.8m and booked a US$10m accounting loss. Given it only has net cash of US$27.4m, the company may need to raise more capital if it doesn't reach break-even soon. cbdMD's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that cbdMD is showing 2 warning signs in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

This article by Simply Wall St is general in nature. 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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