Does Aurora Cannabis (TSE:ACB) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Aurora Cannabis Inc. (TSE:ACB) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Aurora Cannabis

How Much Debt Does Aurora Cannabis Carry?

You can click the graphic below for the historical numbers, but it shows that Aurora Cannabis had CA$226.5m of debt in June 2022, down from CA$327.9m, one year before. However, it does have CA$439.1m in cash offsetting this, leading to net cash of CA$212.6m.

How Strong Is Aurora Cannabis' Balance Sheet?

According to the last reported balance sheet, Aurora Cannabis had liabilities of CA$145.2m due within 12 months, and liabilities of CA$276.8m due beyond 12 months. Offsetting these obligations, it had cash of CA$439.1m as well as receivables valued at CA$47.1m due within 12 months. So it can boast CA$64.2m more liquid assets than total liabilities.

This surplus suggests that Aurora Cannabis has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Aurora Cannabis has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Aurora Cannabis 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 Aurora Cannabis had a loss before interest and tax, and actually shrunk its revenue by 9.8%, to CA$221m. That's not what we would hope to see.

So How Risky Is Aurora Cannabis?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Aurora Cannabis had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through CA$142m of cash and made a loss of CA$1.7b. Given it only has net cash of CA$212.6m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that Aurora Cannabis is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

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.