Yahoo Finance Is New Age Beverages (NASDAQ:NBEV) A Risky Investment?
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. Importantly, New Age Beverages Corporation (NASDAQ:NBEV) does carry debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.
View our latest analysis for New Age Beverages
How Much Debt Does New Age Beverages Carry?
The image below, which you can click on for greater detail, shows that at September 2019 New Age Beverages had debt of US$24.2m, up from none in one year. However, its balance sheet shows it holds US$68.4m in cash, so it actually has US$44.1m net cash.
How Healthy Is New Age Beverages's Balance Sheet?
The latest balance sheet data shows that New Age Beverages had liabilities of US$81.2m due within a year, and liabilities of US$82.4m falling due after that. Offsetting this, it had US$68.4m in cash and US$13.0m in receivables that were due within 12 months. So its liabilities total US$82.2m more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since New Age Beverages has a market capitalization of US$199.9m, 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. Despite its noteworthy liabilities, New Age Beverages boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if New Age Beverages 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, New Age Beverages reported revenue of US$208m, which is a gain of 322%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!
So How Risky Is New Age Beverages?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months New Age Beverages lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$33m of cash and made a loss of US$27m. However, it has net cash of US$44.1m, so it has a bit of time before it will need more capital. The good news for shareholders is that New Age Beverages has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with New Age Beverages (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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