Would Greenlane Renewables (CVE:GRN) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Greenlane Renewables Inc. (CVE:GRN) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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.

View our latest analysis for Greenlane Renewables

What Is Greenlane Renewables's Debt?

You can click the graphic below for the historical numbers, but it shows that Greenlane Renewables had CA$5.83m of debt in September 2020, down from CA$10.5m, one year before. However, it does have CA$5.74m in cash offsetting this, leading to net debt of about CA$92.0k.

How Strong Is Greenlane Renewables's Balance Sheet?

According to the last reported balance sheet, Greenlane Renewables had liabilities of CA$12.6m due within 12 months, and liabilities of CA$630.0k due beyond 12 months. Offsetting this, it had CA$5.74m in cash and CA$3.92m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$3.58m.

This state of affairs indicates that Greenlane Renewables's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CA$191.0m company is struggling for cash, we still think it's worth monitoring its balance sheet. Carrying virtually no net debt, Greenlane Renewables has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Greenlane Renewables 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 Greenlane Renewables wasn't profitable at an EBIT level, but managed to grow its revenue by 187%, to CA$17m. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

While we can certainly appreciate Greenlane Renewables's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at CA$3.6m. 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 CA$4.9m of cash over the last year. So to be blunt we think it is 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 Greenlane Renewables is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

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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