Yahoo Finance Does Alkaline Water (NASDAQ:WTER) Have A Healthy Balance Sheet?
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital. 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 The Alkaline Water Company Inc. (NASDAQ:WTER) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Alkaline Water
What Is Alkaline Water's Net Debt?
As you can see below, at the end of September 2019, Alkaline Water had US$4.01m of debt, up from US$2.7 a year ago. Click the image for more detail. But on the other hand it also has US$6.87m in cash, leading to a US$2.86m net cash position.
A Look At Alkaline Water's Liabilities
According to the last reported balance sheet, Alkaline Water had liabilities of US$9.48m due within 12 months, and liabilities of US$7.8k due beyond 12 months. On the other hand, it had cash of US$6.87m and US$4.26m worth of receivables due within a year. So it actually has US$1.64m more liquid assets than total liabilities.
This short term liquidity is a sign that Alkaline Water could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Alkaline Water has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Alkaline Water's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Over 12 months, Alkaline Water reported revenue of US$36m, which is a gain of 38%, 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.
So How Risky Is Alkaline Water?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that Alkaline Water had negative earnings before interest and tax (EBIT), over the last year. And over the same period it saw negative free cash outflow of US$14m and booked a US$15m accounting loss. With only US$2.86m on the balance sheet, it would appear that its going to need to raise capital again soon. Alkaline Water's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger 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. Case in point: We've spotted 6 warning signs for Alkaline Water you should be aware of, and 2 of them are a bit concerning.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
