Icelandair Group hf (ICE:ICEAIR) 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. We note that Icelandair Group hf. (ICE:ICEAIR) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Icelandair Group hf

What Is Icelandair Group hf's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Icelandair Group hf had US$294.6m of debt, an increase on US$257.1m, over one year. But it also has US$331.0m in cash to offset that, meaning it has US$36.4m net cash.

A Look At Icelandair Group hf's Liabilities

According to the last reported balance sheet, Icelandair Group hf had liabilities of US$671.3m due within 12 months, and liabilities of US$533.4m due beyond 12 months. Offsetting these obligations, it had cash of US$331.0m as well as receivables valued at US$178.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$695.7m.

When you consider that this deficiency exceeds the company's US$547.9m market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. Icelandair Group hf boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Icelandair Group hf's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Icelandair Group hf wasn't profitable at an EBIT level, but managed to grow its revenue by 150%, to US$679m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Icelandair Group hf?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Icelandair Group hf lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$149m of cash and made a loss of US$124m. Given it only has net cash of US$36.4m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Icelandair Group hf 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. 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. Be aware that Icelandair Group hf is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.