Is Else Nutrition Holdings (TSE:BABY) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that Else Nutrition Holdings Inc. (TSE:BABY) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Else Nutrition Holdings

How Much Debt Does Else Nutrition Holdings Carry?

As you can see below, Else Nutrition Holdings had CA$2.79m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds CA$4.93m in cash, so it actually has CA$2.14m net cash.

A Look At Else Nutrition Holdings' Liabilities

The latest balance sheet data shows that Else Nutrition Holdings had liabilities of CA$3.17m due within a year, and liabilities of CA$6.18m falling due after that. Offsetting these obligations, it had cash of CA$4.93m as well as receivables valued at CA$1.94m due within 12 months. So it has liabilities totalling CA$2.48m more than its cash and near-term receivables, combined.

Since publicly traded Else Nutrition Holdings shares are worth a total of CA$38.3m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Else Nutrition Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Else Nutrition Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Else Nutrition Holdings reported revenue of CA$9.4m, which is a gain of 9.8%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Else Nutrition Holdings?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Else Nutrition Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$18m of cash and made a loss of CA$16m. With only CA$2.14m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example, we've discovered 5 warning signs for Else Nutrition Holdings (2 are potentially serious!) that you should be aware of before investing here.

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.