Health Check: How Prudently Does Lucid Group (NASDAQ:LCID) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Lucid Group, Inc. (NASDAQ:LCID) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Lucid Group

What Is Lucid Group's Debt?

The chart below, which you can click on for greater detail, shows that Lucid Group had US$2.07b in debt in March 2024; about the same as the year before. However, its balance sheet shows it holds US$3.99b in cash, so it actually has US$1.92b net cash.

How Strong Is Lucid Group's Balance Sheet?

We can see from the most recent balance sheet that Lucid Group had liabilities of US$1.04b falling due within a year, and liabilities of US$3.12b due beyond that. Offsetting this, it had US$3.99b in cash and US$138.6m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Lucid Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$6.81b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Lucid Group boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Lucid Group'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.

Over 12 months, Lucid Group made a loss at the EBIT level, and saw its revenue drop to US$619m, which is a fall of 12%. We would much prefer see growth.

So How Risky Is Lucid Group?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Lucid Group 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$3.1b and booked a US$2.7b accounting loss. But at least it has US$1.92b on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Lucid Group you should know about.

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.

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

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.

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