Is NTG Clarity Networks (CVE:NCI) A Risky Investment?
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.' 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. We note that NTG Clarity Networks Inc. (CVE:NCI) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does NTG Clarity Networks Carry?
As you can see below, NTG Clarity Networks had CA$5.08m of debt at September 2025, down from CA$8.25m a year prior. But it also has CA$6.58m in cash to offset that, meaning it has CA$1.50m net cash.
How Strong Is NTG Clarity Networks' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that NTG Clarity Networks had liabilities of CA$12.1m due within 12 months and liabilities of CA$5.18m due beyond that. Offsetting this, it had CA$6.58m in cash and CA$30.6m in receivables that were due within 12 months. So it can boast CA$20.0m more liquid assets than total liabilities.
This luscious liquidity implies that NTG Clarity Networks' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that NTG Clarity Networks has more cash than debt is arguably a good indication that it can manage its debt safely.
See our latest analysis for NTG Clarity Networks
In addition to that, we're happy to report that NTG Clarity Networks has boosted its EBIT by 81%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine NTG Clarity Networks's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. NTG Clarity Networks may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, NTG Clarity Networks saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that NTG Clarity Networks has net cash of CA$1.50m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 81% over the last year. So is NTG Clarity Networks's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for NTG Clarity Networks (of which 1 is potentially serious!) 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.
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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.