Is Fluence Energy (NASDAQ:FLNC) Using Debt Sensibly?

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.' 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. As with many other companies Fluence Energy, Inc. (NASDAQ:FLNC) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Fluence Energy

What Is Fluence Energy's Debt?

The image below, which you can click on for greater detail, shows that at June 2024 Fluence Energy had debt of US$53.7m, up from US$49.5m in one year. However, it does have US$388.2m in cash offsetting this, leading to net cash of US$334.5m.

How Healthy Is Fluence Energy's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Fluence Energy had liabilities of US$1.12b due within 12 months and liabilities of US$27.1m due beyond that. On the other hand, it had cash of US$388.2m and US$365.9m worth of receivables due within a year. So it has liabilities totalling US$397.6m more than its cash and near-term receivables, combined.

Of course, Fluence Energy has a market capitalization of US$3.81b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Fluence Energy also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Fluence 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 Fluence Energy wasn't profitable at an EBIT level, but managed to grow its revenue by 7.9%, to US$2.1b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Fluence Energy?

While Fluence Energy lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$101m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Fluence Energy insider transactions.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.