Greenbriar Sustainable Living (CVE:GRB) Is Carrying A Fair Bit Of Debt

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. As with many other companies Greenbriar Sustainable Living Inc. (CVE:GRB) 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Greenbriar Sustainable Living

How Much Debt Does Greenbriar Sustainable Living Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Greenbriar Sustainable Living had debt of CA$6.04m, up from CA$846.2k in one year. However, because it has a cash reserve of CA$2.35m, its net debt is less, at about CA$3.69m.

A Look At Greenbriar Sustainable Living's Liabilities

Zooming in on the latest balance sheet data, we can see that Greenbriar Sustainable Living had liabilities of CA$10.6m due within 12 months and liabilities of CA$3.52m due beyond that. On the other hand, it had cash of CA$2.35m and CA$5.4k worth of receivables due within a year. So its liabilities total CA$11.8m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Greenbriar Sustainable Living is worth CA$28.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Greenbriar Sustainable Living will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Given it has no significant operating revenue at the moment, shareholders will be hoping Greenbriar Sustainable Living can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Over the last twelve months Greenbriar Sustainable Living produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CA$2.9m. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through CA$2.8m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 5 warning signs for Greenbriar Sustainable Living you should be aware of, and 3 of them are a bit concerning.

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.