Green Impact Partners (CVE:GIP) Is Carrying A Fair Bit Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Green Impact Partners Inc. (CVE:GIP) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Green Impact Partners

How Much Debt Does Green Impact Partners Carry?

The image below, which you can click on for greater detail, shows that Green Impact Partners had debt of CA$23.5m at the end of September 2024, a reduction from CA$26.5m over a year. On the flip side, it has CA$2.17m in cash leading to net debt of about CA$21.3m.

A Look At Green Impact Partners' Liabilities

We can see from the most recent balance sheet that Green Impact Partners had liabilities of CA$50.5m falling due within a year, and liabilities of CA$16.0m due beyond that. Offsetting this, it had CA$2.17m in cash and CA$13.9m in receivables that were due within 12 months. So its liabilities total CA$50.4m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of CA$82.3m, so it does suggest shareholders should keep an eye on Green Impact Partners' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Green Impact Partners 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.

In the last year Green Impact Partners had a loss before interest and tax, and actually shrunk its revenue by 14%, to CA$145m. We would much prefer see growth.

Caveat Emptor

Not only did Green Impact Partners's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost a very considerable CA$9.3m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CA$9.0m in negative free cash flow over the last twelve months. 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 3 warning signs we've spotted with Green Impact Partners (including 2 which are a bit unpleasant) .

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.

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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.