Health Check: How Prudently Does GreenPower Motor (CVE:GPV) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies GreenPower Motor Company Inc. (CVE:GPV) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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.

See our latest analysis for GreenPower Motor

What Is GreenPower Motor's Net Debt?

As you can see below, at the end of March 2022, GreenPower Motor had US$5.77m of debt, up from US$711.5k a year ago. Click the image for more detail. But it also has US$6.89m in cash to offset that, meaning it has US$1.12m net cash.

How Strong Is GreenPower Motor's Balance Sheet?

The latest balance sheet data shows that GreenPower Motor had liabilities of US$11.5m due within a year, and liabilities of US$3.71m falling due after that. Offsetting these obligations, it had cash of US$6.89m as well as receivables valued at US$3.45m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$4.88m.

Of course, GreenPower Motor has a market capitalization of US$86.9m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, GreenPower Motor also has more cash than debt, so we're pretty confident 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 GreenPower Motor'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.

In the last year GreenPower Motor wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$17m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is GreenPower Motor?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that GreenPower Motor had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$21m and booked a US$15m accounting loss. Given it only has net cash of US$1.12m, the company may need to raise more capital if it doesn't reach break-even soon. GreenPower Motor's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that GreenPower Motor is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

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.