Is Greenbriar Sustainable Living (CVE:GRB) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Greenbriar Sustainable Living Inc. (CVE:GRB) 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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. 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

What Is Greenbriar Sustainable Living's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Greenbriar Sustainable Living had debt of CA$6.84m, up from CA$1.53m in one year. On the flip side, it has CA$1.97m in cash leading to net debt of about CA$4.87m.

How Strong Is Greenbriar Sustainable Living's Balance Sheet?

We can see from the most recent balance sheet that Greenbriar Sustainable Living had liabilities of CA$11.6m falling due within a year, and liabilities of CA$3.94m due beyond that. On the other hand, it had cash of CA$1.97m and CA$9.6k worth of receivables due within a year. So it has liabilities totalling CA$13.6m more than its cash and near-term receivables, combined.

Greenbriar Sustainable Living has a market capitalization of CA$22.9m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

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

Importantly, Greenbriar Sustainable Living had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable CA$3.1m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much 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$3.2m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 5 warning signs we've spotted with Greenbriar Sustainable Living (including 3 which don't sit too well with us) .

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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