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. Importantly, iAnthus Capital Holdings, Inc. (CNSX:IAN) does carry debt. But the real question is whether this debt is making the company risky.
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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.
How Much Debt Does iAnthus Capital Holdings Carry?
You can click the graphic below for the historical numbers, but it shows that as of March 2019 iAnthus Capital Holdings had US$95.4m of debt, an increase on US$19.0m, over one year. However, it does have US$42.3m in cash offsetting this, leading to net debt of about US$53.1m.
How Healthy Is iAnthus Capital Holdings’s Balance Sheet?
The latest balance sheet data shows that iAnthus Capital Holdings had liabilities of US$106.7m due within a year, and liabilities of US$128.0m falling due after that. Offsetting these obligations, it had cash of US$42.3m as well as receivables valued at US$6.24m due within 12 months. So it has liabilities totalling US$186.1m more than its cash and near-term receivables, combined.
This deficit isn’t so bad because iAnthus Capital Holdings is worth US$427.1m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine iAnthus Capital Holdings’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, iAnthus Capital Holdings saw its revenue hold pretty steady. While that hardly impresses, its not too bad either.
Over the last twelve months iAnthus Capital Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$40m. 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 US$57m of cash over the last year. So in short it’s a really risky stock. For riskier companies like iAnthus Capital Holdings I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
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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