Is Greenvale Energy (ASX:GRV) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Greenvale Energy Ltd (ASX:GRV) makes use of debt. But the more important question is: how much risk is that debt creating?

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. 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.

Check out our latest analysis for Greenvale Energy

How Much Debt Does Greenvale Energy Carry?

As you can see below, Greenvale Energy had AU$2.61m of debt at June 2024, down from AU$3.76m a year prior. However, it also had AU$1.52m in cash, and so its net debt is AU$1.08m.

A Look At Greenvale Energy's Liabilities

Zooming in on the latest balance sheet data, we can see that Greenvale Energy had liabilities of AU$3.21m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of AU$1.52m as well as receivables valued at AU$1.04m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$649.6k.

Since publicly traded Greenvale Energy shares are worth a total of AU$11.9m, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is Greenvale Energy'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.

Given its lack of meaningful operating revenue, Greenvale Energy shareholders no doubt hope it can fund itself until it can sell some combustibles.

Caveat Emptor

Importantly, Greenvale Energy had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping AU$1.7m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through AU$3.7m of cash over the last year. So in short it's a really risky stock. 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 6 warning signs we've spotted with Greenvale Energy (including 4 which are significant) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.