Does urban-gro (NASDAQ:UGRO) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that urban-gro, Inc. (NASDAQ:UGRO) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for urban-gro

How Much Debt Does urban-gro Carry?

The image below, which you can click on for greater detail, shows that at December 2022 urban-gro had debt of US$3.83m, up from none in one year. However, its balance sheet shows it holds US$12.0m in cash, so it actually has US$8.18m net cash.

How Strong Is urban-gro's Balance Sheet?

We can see from the most recent balance sheet that urban-gro had liabilities of US$24.3m falling due within a year, and liabilities of US$3.08m due beyond that. Offsetting these obligations, it had cash of US$12.0m as well as receivables valued at US$16.0m due within 12 months. So it actually has US$658.8k more liquid assets than total liabilities.

This surplus suggests that urban-gro has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, urban-gro 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 ultimately the future profitability of the business will decide if urban-gro 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 urban-gro wasn't profitable at an EBIT level, but managed to grow its revenue by 7.9%, to US$67m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is urban-gro?

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 urban-gro had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$13m of cash and made a loss of US$15m. With only US$8.18m 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. For instance, we've identified 5 warning signs for urban-gro (1 makes us a bit uncomfortable) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.