Yahoo Finance Is Hill Street Beverage (CVE:BEER) Weighed On By Its Debt Load?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Hill Street Beverage Company Inc. (CVE:BEER) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Hill Street Beverage
What Is Hill Street Beverage's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2021 Hill Street Beverage had CA$2.20m of debt, an increase on CA$840.6k, over one year. But it also has CA$2.30m in cash to offset that, meaning it has CA$106.8k net cash.
A Look At Hill Street Beverage's Liabilities
According to the last reported balance sheet, Hill Street Beverage had liabilities of CA$983.1k due within 12 months, and liabilities of CA$2.18m due beyond 12 months. Offsetting these obligations, it had cash of CA$2.30m as well as receivables valued at CA$423.2k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$433.4k.
Since publicly traded Hill Street Beverage shares are worth a total of CA$12.7m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Hill Street Beverage boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Hill Street Beverage's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Over 12 months, Hill Street Beverage reported revenue of CA$2.5m, which is a gain of 51%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is Hill Street Beverage?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Hill Street Beverage lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through CA$2.7m of cash and made a loss of CA$3.2m. With only CA$106.8k on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, Hill Street Beverage may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 7 warning signs we've spotted with Hill Street Beverage (including 3 which are potentially serious) .
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.
