Is Arcimoto (NASDAQ:FUV) Using Too Much Debt?

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. As with many other companies Arcimoto, Inc. (NASDAQ:FUV) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Arcimoto

What Is Arcimoto's Debt?

The image below, which you can click on for greater detail, shows that Arcimoto had debt of US$3.13m at the end of March 2021, a reduction from US$5.01m over a year. But it also has US$46.7m in cash to offset that, meaning it has US$43.5m net cash.

How Healthy Is Arcimoto's Balance Sheet?

We can see from the most recent balance sheet that Arcimoto had liabilities of US$3.47m falling due within a year, and liabilities of US$3.09m due beyond that. Offsetting this, it had US$46.7m in cash and US$13.9k in receivables that were due within 12 months. So it can boast US$40.1m more liquid assets than total liabilities.

This surplus suggests that Arcimoto has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Arcimoto has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Arcimoto can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Arcimoto reported revenue of US$3.0m, which is a gain of 84%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Arcimoto?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Arcimoto had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$22m and booked a US$19m accounting loss. Given it only has net cash of US$43.5m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Arcimoto may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Arcimoto has 4 warning signs we think you should be aware of.

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.

If you decide to trade Arcimoto, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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