Is Brenmiller Energy (TLV:BNRG) Using Debt In A Risky Way?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Brenmiller Energy Ltd (TLV:BNRG) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Brenmiller Energy

How Much Debt Does Brenmiller Energy Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 Brenmiller Energy had US$3.97m of debt, an increase on US$5.0k, over one year. However, its balance sheet shows it holds US$6.14m in cash, so it actually has US$2.17m net cash.

How Strong Is Brenmiller Energy's Balance Sheet?

The latest balance sheet data shows that Brenmiller Energy had liabilities of US$2.65m due within a year, and liabilities of US$7.07m falling due after that. On the other hand, it had cash of US$6.14m and US$1.24m worth of receivables due within a year. So its liabilities total US$2.34m more than the combination of its cash and short-term receivables.

Since publicly traded Brenmiller Energy shares are worth a total of US$26.2m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Brenmiller Energy also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Brenmiller Energy's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Brenmiller Energy reported revenue of US$1.5m, which is a gain of 285%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Brenmiller Energy?

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 Brenmiller Energy had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$12m of cash and made a loss of US$11m. Given it only has net cash of US$2.17m, the company may need to raise more capital if it doesn't reach break-even soon. Importantly, Brenmiller Energy'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. Case in point: We've spotted 6 warning signs for Brenmiller Energy you should be aware of, and 3 of them are potentially serious.

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.