Health Check: How Prudently Does FGI Industries (NASDAQ:FGI) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies FGI Industries Ltd. (NASDAQ:FGI) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. 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. 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.

What Is FGI Industries's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 FGI Industries had US$13.2m of debt, an increase on US$11.4m, over one year. However, it also had US$1.23m in cash, and so its net debt is US$11.9m.

How Healthy Is FGI Industries' Balance Sheet?

According to the last reported balance sheet, FGI Industries had liabilities of US$37.2m due within 12 months, and liabilities of US$10.3m due beyond 12 months. On the other hand, it had cash of US$1.23m and US$18.9m worth of receivables due within a year. So its liabilities total US$27.4m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the US$7.34m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, FGI Industries would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine FGI Industries's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for FGI Industries

Over 12 months, FGI Industries reported revenue of US$134m, which is a gain of 11%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, FGI Industries had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost a very considerable US$3.1m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through US$3.5m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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 - FGI Industries has 4 warning signs we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.