Is Green Impact Partners (CVE:GIP) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Green Impact Partners Inc. (CVE:GIP) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Green Impact Partners

What Is Green Impact Partners's Net Debt?

The image below, which you can click on for greater detail, shows that Green Impact Partners had debt of CA$26.5m at the end of September 2023, a reduction from CA$56.9m over a year. However, it also had CA$1.30m in cash, and so its net debt is CA$25.2m.

How Healthy Is Green Impact Partners' Balance Sheet?

According to the last reported balance sheet, Green Impact Partners had liabilities of CA$33.2m due within 12 months, and liabilities of CA$40.1m due beyond 12 months. Offsetting these obligations, it had cash of CA$1.30m as well as receivables valued at CA$19.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$52.9m.

This is a mountain of leverage relative to its market capitalization of CA$60.7m. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 Green Impact Partners can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Green Impact Partners had a loss before interest and tax, and actually shrunk its revenue by 19%, to CA$168m. That's not what we would hope to see.

Caveat Emptor

While Green Impact Partners's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping CA$9.8m. 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. However, it doesn't help that it burned through CA$22m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Green Impact Partners is showing 4 warning signs in our investment analysis , and 1 of those can't be ignored...

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.