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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Greenbriar Sustainable Living Inc. (CVE:GRB) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 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 June 2024 Greenbriar Sustainable Living had debt of CA$6.35m, up from CA$1.42m in one year. However, because it has a cash reserve of CA$2.37m, its net debt is less, at about CA$3.98m.

A Look At Greenbriar Sustainable Living's Liabilities

The latest balance sheet data shows that Greenbriar Sustainable Living had liabilities of CA$11.3m due within a year, and liabilities of CA$3.31m falling due after that. Offsetting these obligations, it had cash of CA$2.37m as well as receivables valued at CA$9.4k due within 12 months. So its liabilities total CA$12.2m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of CA$15.5m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. 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.

It seems likely shareholders hope that Greenbriar Sustainable Living can significantly advance the business plan before too long, because it doesn't have any significant revenue at the moment.

Caveat Emptor

Importantly, Greenbriar Sustainable Living had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$2.9m at the EBIT level. 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$2.6m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Greenbriar Sustainable Living has 6 warning signs (and 3 which can't be ignored) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.