Workhorse Group (NASDAQ:WKHS) May Not Be Profitable But It Seems To Be Managing Its Debt Just Fine, Anyway

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.' 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 Workhorse Group Inc. (NASDAQ:WKHS) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 Workhorse Group

What Is Workhorse Group's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Workhorse Group had US$182.2m of debt, an increase on US$47.1m, over one year. However, its balance sheet shows it holds US$399.0m in cash, so it actually has US$216.8m net cash.

How Strong Is Workhorse Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Workhorse Group had liabilities of US$17.6m due within 12 months and liabilities of US$186.6m due beyond that. Offsetting these obligations, it had cash of US$399.0m as well as receivables valued at US$1.14m due within 12 months. So it actually has US$196.0m more liquid assets than total liabilities.

This excess liquidity suggests that Workhorse Group is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Workhorse 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 ultimately the future profitability of the business will decide if Workhorse Group 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, Workhorse Group reported revenue of US$1.8m, which is a gain of 1,792%, 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 Workhorse Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Workhorse Group lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$76m and booked a US$55m accounting loss. With only US$216.8m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that Workhorse Group has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Workhorse Group you should be aware of, and 1 of them can't be ignored.

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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