Yahoo Finance Health Check: How Prudently Does HyreCar (NASDAQ:HYRE) Use Debt?
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that HyreCar Inc. (NASDAQ:HYRE) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for HyreCar
How Much Debt Does HyreCar Carry?
As you can see below, HyreCar had US$2.00m of debt, at June 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has US$24.0m in cash to offset that, meaning it has US$22.0m net cash.
A Look At HyreCar's Liabilities
According to the balance sheet data, HyreCar had liabilities of US$14.9m due within 12 months, but no longer term liabilities. Offsetting these obligations, it had cash of US$24.0m as well as receivables valued at US$101.6k due within 12 months. So it can boast US$9.25m more liquid assets than total liabilities.
This surplus suggests that HyreCar has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that HyreCar has more cash than debt is arguably a good indication that it can manage its debt safely. 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 HyreCar 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.
Over 12 months, HyreCar reported revenue of US$30m, 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.
So How Risky Is HyreCar?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year HyreCar had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$10m of cash and made a loss of US$24m. With only US$22.0m on the balance sheet, it would appear that its going to need to raise capital again soon. HyreCar'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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with HyreCar , and understanding them should be part of your investment process.
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.
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.
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