Goodfood Market (TSE:FOOD) Has Debt But No Earnings; Should You Worry?

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. Importantly, Goodfood Market Corp. (TSE:FOOD) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Goodfood Market

What Is Goodfood Market's Net Debt?

As you can see below, at the end of December 2021, Goodfood Market had CA$38.4m of debt, up from CA$32.0m a year ago. Click the image for more detail. But on the other hand it also has CA$104.8m in cash, leading to a CA$66.4m net cash position.

How Healthy Is Goodfood Market's Balance Sheet?

According to the last reported balance sheet, Goodfood Market had liabilities of CA$58.3m due within 12 months, and liabilities of CA$121.7m due beyond 12 months. On the other hand, it had cash of CA$104.8m and CA$4.30m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$71.0m.

Goodfood Market has a market capitalization of CA$206.6m, 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. Despite its noteworthy liabilities, Goodfood Market boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Goodfood Market'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, Goodfood Market reported revenue of CA$366m, which is a gain of 13%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Goodfood Market?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Goodfood Market had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through CA$65m of cash and made a loss of CA$50m. While this does make the company a bit risky, it's important to remember it has net cash of CA$66.4m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. 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. For instance, we've identified 3 warning signs for Goodfood Market that you should be aware of.

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.