Does SG Blocks (NASDAQ:SGBX) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, SG Blocks, Inc. (NASDAQ:SGBX) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for SG Blocks

How Much Debt Does SG Blocks Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 SG Blocks had US$1.96m of debt, an increase on none, over one year. However, it does have US$3.29m in cash offsetting this, leading to net cash of US$1.33m.

How Strong Is SG Blocks' Balance Sheet?

The latest balance sheet data shows that SG Blocks had liabilities of US$10.8m due within a year, and liabilities of US$957.5k falling due after that. Offsetting this, it had US$3.29m in cash and US$4.05m in receivables that were due within 12 months. So it has liabilities totalling US$4.46m more than its cash and near-term receivables, combined.

Of course, SG Blocks has a market capitalization of US$30.3m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, SG Blocks 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 you can't view debt in total isolation; since SG Blocks will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year SG Blocks wasn't profitable at an EBIT level, but managed to grow its revenue by 2,038%, to US$37m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is SG Blocks?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that SG Blocks had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$5.8m of cash and made a loss of US$9.0m. With only US$1.33m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that SG Blocks has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. The balance sheet is clearly the area to focus on when you are analysing debt. 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 5 warning signs for SG Blocks (of which 2 are a bit concerning!) 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.

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.

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