Does Global Bioenergies (EPA:ALGBE) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Global Bioenergies SA (EPA:ALGBE) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Global Bioenergies

What Is Global Bioenergies's Debt?

The image below, which you can click on for greater detail, shows that Global Bioenergies had debt of €4.82m at the end of December 2023, a reduction from €6.38m over a year. However, its balance sheet shows it holds €11.8m in cash, so it actually has €7.02m net cash.

How Healthy Is Global Bioenergies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Global Bioenergies had liabilities of €3.88m due within 12 months and liabilities of €3.97m due beyond that. On the other hand, it had cash of €11.8m and €1.05m worth of receivables due within a year. So it can boast €5.05m more liquid assets than total liabilities.

This excess liquidity suggests that Global Bioenergies is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Global Bioenergies boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Global Bioenergies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Global Bioenergies wasn't profitable at an EBIT level, but managed to grow its revenue by 366%, to €3.2m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Global Bioenergies?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Global Bioenergies had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of €8.2m and booked a €8.7m accounting loss. But at least it has €7.02m on the balance sheet to spend on growth, near-term. The good news for shareholders is that Global Bioenergies has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. For example, we've discovered 5 warning signs for Global Bioenergies (1 is a bit concerning!) that you should be aware of before investing here.

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.

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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.

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