Is Gogoro (NASDAQ:GGR) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Gogoro Inc. (NASDAQ:GGR) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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.

View our latest analysis for Gogoro

What Is Gogoro's Debt?

As you can see below, at the end of September 2024, Gogoro had US$392.4m of debt, up from US$363.9m a year ago. Click the image for more detail. On the flip side, it has US$119.2m in cash leading to net debt of about US$273.3m.

How Strong Is Gogoro's Balance Sheet?

According to the last reported balance sheet, Gogoro had liabilities of US$212.9m due within 12 months, and liabilities of US$353.2m due beyond 12 months. On the other hand, it had cash of US$119.2m and US$17.7m worth of receivables due within a year. So its liabilities total US$429.2m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the US$177.4m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Gogoro would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Gogoro can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Gogoro had a loss before interest and tax, and actually shrunk its revenue by 7.0%, to US$329m. That's not what we would hope to see.

Caveat Emptor

Importantly, Gogoro had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$97m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it had negative free cash flow of US$63m over the last twelve months. That means it's on the risky side of things. 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. To that end, you should be aware of the 3 warning signs we've spotted with Gogoro .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.