Is Great Lakes Dredge & Dock (NASDAQ:GLDD) Weighed On By Its Debt Load?

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 note that Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Great Lakes Dredge & Dock

What Is Great Lakes Dredge & Dock's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2023 Great Lakes Dredge & Dock had US$371.7m of debt, an increase on US$321.1m, over one year. However, because it has a cash reserve of US$32.5m, its net debt is less, at about US$339.1m.

How Strong Is Great Lakes Dredge & Dock's Balance Sheet?

According to the last reported balance sheet, Great Lakes Dredge & Dock had liabilities of US$163.2m due within 12 months, and liabilities of US$497.8m due beyond 12 months. Offsetting these obligations, it had cash of US$32.5m as well as receivables valued at US$114.0m due within 12 months. So it has liabilities totalling US$514.5m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of US$391.2m, we think shareholders really should watch Great Lakes Dredge & Dock's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Great Lakes Dredge & Dock'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.

In the last year Great Lakes Dredge & Dock had a loss before interest and tax, and actually shrunk its revenue by 18%, to US$612m. That's not what we would hope to see.

Caveat Emptor

While Great Lakes Dredge & Dock's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping US$39m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. Not least because it burned through US$163m in negative free cash flow over the last year. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Great Lakes Dredge & Dock you should know about.

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.