Global Bioenergies (EPA:ALGBE) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 note that Global Bioenergies SA (EPA:ALGBE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Our analysis indicates that ALGBE is potentially overvalued!

What Is Global Bioenergies's Debt?

You can click the graphic below for the historical numbers, but it shows that Global Bioenergies had €6.58m of debt in June 2022, down from €13.4m, one year before. But on the other hand it also has €11.9m in cash, leading to a €5.29m net cash position.

A Look At Global Bioenergies' Liabilities

The latest balance sheet data shows that Global Bioenergies had liabilities of €4.78m due within a year, and liabilities of €6.07m falling due after that. Offsetting these obligations, it had cash of €11.9m as well as receivables valued at €1.76m due within 12 months. So it actually has €2.77m more liquid assets than total liabilities.

This surplus suggests that Global Bioenergies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Global Bioenergies 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 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.

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

So How Risky Is Global Bioenergies?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Global Bioenergies had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €14m of cash and made a loss of €9.9m. Given it only has net cash of €5.29m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Global Bioenergies's revenue growth is hot to trot. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 5 warning signs with Global Bioenergies (at least 2 which are significant) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.