Does NG Energy International (CVE:GASX) Have A Healthy Balance Sheet?

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.' 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 NG Energy International Corp. (CVE:GASX) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for NG Energy International

How Much Debt Does NG Energy International Carry?

You can click the graphic below for the historical numbers, but it shows that NG Energy International had US$36.9m of debt in September 2024, down from US$55.7m, one year before. However, it also had US$19.1m in cash, and so its net debt is US$17.7m.

How Healthy Is NG Energy International's Balance Sheet?

We can see from the most recent balance sheet that NG Energy International had liabilities of US$31.1m falling due within a year, and liabilities of US$43.7m due beyond that. Offsetting this, it had US$19.1m in cash and US$5.25m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$50.5m.

NG Energy International has a market capitalization of US$165.4m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if NG Energy International 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 NG Energy International wasn't profitable at an EBIT level, but managed to grow its revenue by 272%, to US$29m. That's virtually the hole-in-one of revenue growth!

Caveat Emptor

Despite the top line growth, NG Energy International still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$2.5m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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 US$8.1m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. For instance, we've identified 3 warning signs for NG Energy International that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.