Is Plug Power (NASDAQ:PLUG) Using Too Much 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.' 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. We note that Plug Power Inc. (NASDAQ:PLUG) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Plug Power

What Is Plug Power's Debt?

As you can see below, at the end of March 2022, Plug Power had US$546.2m of debt, up from US$514.0m a year ago. Click the image for more detail. But on the other hand it also has US$3.44b in cash, leading to a US$2.90b net cash position.

How Strong Is Plug Power's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Plug Power had liabilities of US$358.3m due within 12 months and liabilities of US$969.2m due beyond that. On the other hand, it had cash of US$3.44b and US$99.3m worth of receivables due within a year. So it actually has US$2.21b more liquid assets than total liabilities.

It's good to see that Plug Power has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Plug Power 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 Plug Power 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.

While it hasn't made a profit, at least Plug Power booked its first revenue as a publicly listed company, in the last twelve months.

So How Risky Is Plug Power?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Plug Power had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$716m and booked a US$556m accounting loss. With only US$2.90b on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Be aware that Plug Power is showing 1 warning sign in our investment analysis , you should know about...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.