FuelCell Energy (NASDAQ:FCEL) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, FuelCell Energy, Inc. (NASDAQ:FCEL) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for FuelCell Energy

What Is FuelCell Energy's Debt?

You can click the graphic below for the historical numbers, but it shows that as of January 2023 FuelCell Energy had US$94.8m of debt, an increase on US$90.9m, over one year. But on the other hand it also has US$390.8m in cash, leading to a US$296.0m net cash position.

A Look At FuelCell Energy's Liabilities

Zooming in on the latest balance sheet data, we can see that FuelCell Energy had liabilities of US$66.1m due within 12 months and liabilities of US$91.1m due beyond that. Offsetting this, it had US$390.8m in cash and US$16.9m in receivables that were due within 12 months. So it actually has US$250.6m more liquid assets than total liabilities.

This surplus suggests that FuelCell Energy is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, FuelCell Energy boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if FuelCell Energy 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 FuelCell Energy wasn't profitable at an EBIT level, but managed to grow its revenue by 57%, to US$136m. With any luck the company will be able to grow its way to profitability.

So How Risky Is FuelCell Energy?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year FuelCell Energy had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$159m of cash and made a loss of US$124m. With only US$296.0m on the balance sheet, it would appear that its going to need to raise capital again soon. FuelCell Energy's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for FuelCell Energy (of which 1 can't be ignored!) 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.

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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.