Bloom Energy (NYSE:BE) Is Carrying A Fair Bit Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Bloom Energy Corporation (NYSE:BE) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

View our latest analysis for Bloom Energy

How Much Debt Does Bloom Energy Carry?

The image below, which you can click on for greater detail, shows that at December 2023 Bloom Energy had debt of US$1.20b, up from US$859.7m in one year. On the flip side, it has US$664.6m in cash leading to net debt of about US$538.5m.

A Look At Bloom Energy's Liabilities

According to the last reported balance sheet, Bloom Energy had liabilities of US$470.4m due within 12 months, and liabilities of US$1.42b due beyond 12 months. On the other hand, it had cash of US$664.6m and US$393.6m worth of receivables due within a year. So its liabilities total US$834.8m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Bloom Energy has a market capitalization of US$2.04b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Bloom Energy 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.

Over 12 months, Bloom Energy reported revenue of US$1.3b, which is a gain of 11%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Bloom Energy had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$85m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$456m of cash over the last year. So in short it's a really risky stock. 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. For example - Bloom Energy has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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