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We Think DXN (ASX:DXN) Has A Fair Chunk Of Debt

Simply Wall St · 08/31 00:31

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that DXN Limited (ASX:DXN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is DXN's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 DXN had AU$5.13m of debt, an increase on AU$4.17m, over one year. However, it does have AU$3.12m in cash offsetting this, leading to net debt of about AU$2.01m.

debt-equity-history-analysis
ASX:DXN Debt to Equity History August 31st 2025

How Strong Is DXN's Balance Sheet?

The latest balance sheet data shows that DXN had liabilities of AU$5.04m due within a year, and liabilities of AU$6.20m falling due after that. Offsetting this, it had AU$3.12m in cash and AU$3.43m in receivables that were due within 12 months. So it has liabilities totalling AU$4.68m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since DXN has a market capitalization of AU$15.8m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if DXN can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for DXN

Over 12 months, DXN reported revenue of AU$16m, which is a gain of 53%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though DXN managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at AU$583k. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled AU$6.3m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. Case in point: We've spotted 5 warning signs for DXN you should be aware of, and 1 of them is potentially serious.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.